Home loans for the self-employed: how lenders really assess business owners

Business owners are often surprised at how little a bank will lend them compared with a salaried friend on what looks like the same income. Usually it isn’t the income. It is how the income is presented.

What lenders ask for

• Personal tax returns and ATO notices of assessment, usually for the last two years
• Business financial statements and tax returns for each entity you own
• Confirmation that ATO lodgements and payments are up to date
• Business activity statements for recent quarters, in some cases

How they calculate your income

Credit teams start with taxable income, then add back expenses that do not reflect cash leaving the business or that will not recur. Common add-backs include depreciation, interest on loans being refinanced, one-off costs and, for some lenders, super contributions above the compulsory rate. Each lender’s policy differs — and that difference is where a broker earns their fee.

Trusts and companies

If your business retains profit in a company, or a trust distributes to other family members, a lender may still count some of that income — but only if the financial statements make it visible and you control the entity. Lenders also look at the business’s own debts and whether the business can afford to pay you.

The tax and lending tension

Every dollar of deduction that reduces your tax also reduces the income a lender sees. That is not a reason to pay more tax than you need to, but it is a reason to plan the year you apply. When we prepare a client’s accounts with a purchase planned, the accountant and the broker are working from the same numbers.

If your returns are not ready

Alternative documentation (“low-doc”) loans use BAS, accountant declarations or bank statements instead of full returns. They usually carry higher rates and lower maximum loan-to-value ratios, and are best treated as a bridge until full financials are available.

Common questions