If you’re self-employed, your borrowing power depends on how a credit team reads your financials. The same business can look very different depending on how it’s presented.
What lenders usually ask for
- The last one or two years of personal and business tax returns and financial statements
- ATO notices of assessment, and confirmation that tax and BAS lodgements are up to date
- Recent business bank statements and, for some lenders, BAS
- Details of business debts, leases and any ATO payment plans
Add-backs: your real earning capacity
Taxable profit isn’t the same as the cash your business can put towards a loan. Many lenders add back certain non-cash or one-off items, such as depreciation, interest on loans being refinanced, or a one-off expense, to arrive at your true earning capacity. Which add-backs a lender accepts varies, and identifying them correctly can make a real difference.
Trend matters as much as the number
A credit team will look at whether income is rising, stable or falling. A strong recent year after a weaker one may be averaged, or the lender may use the lower year. A short note explaining a dip, such as a one-off contract or a move into new premises, helps.
Newer businesses and low-doc options
If you’ve been trading for less than two years or your latest returns aren’t lodged, some lenders accept alternative evidence such as BAS, bank statements or an accountant’s declaration. Rates and deposit requirements are usually higher, so these are best seen as a bridge to a standard loan.
How to put your best foot forward
- Keep tax and BAS lodgements current, and keep personal and business accounts separate.
- Talk to us before you finalise the year’s accounts if a loan is on the horizon. Your accountant can then make decisions with the full picture.
- Explain the story behind the numbers. A clear summary of the business reads well with a credit team.
This is where a CPA background helps: we read your financials the way a credit analyst will, and present them accordingly.