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Do your bank statements verify your cashflow better than tax returns?

Updated: Jun 3, 2019

If a bank will not approve your loan because their analysis of your tax returns does not verify enough income to qualify by their standards, then you may be approved with one of the lenders who allow you to use personal or business bank statements to verify your ability to repay the loan.

If you are self-employed and you think you may want to use bank statements to verify your income, here are some tips that will help you prepare and ensure you will qualify.

There are two types of bank statement loans

  • Those that use business bank statements to qualify

  • Those that use personal bank statements to qualify

Most bank statement programs use an average of the last 12 to 24 months’ deposits. Some use a minimum of 3 months’ business bank statements + a profit and loss statement.

Business Bank Statement program tips

If you own 100% of the business and do not regularly transfer money to your personal accounts, because the business account pays some of your personal expenses, then this program may work for you. There are a variety of programs and each has its own guidelines. In general, these tips will help across the board.

  1. Avoid NSF (non-sufficient funds) at all costs! If the lender sees NSF transactions on your bank statements, they may assume you do not manage money well and do not want to risk lending you more money. If your business income is highly volatile, a business line of credit or overdraft protection may help you keep up with expenses without overdrawing your account.

  2. Put all income in the bank account. This may sound obvious, but it is not obvious if your business generates a lot of cash. Lenders can’t verify cashflow if they can’t prove it.

  3. Be prepared to give them a Profit and Loss statement, prepared by either you or your accountant. Many bank statement lenders verify your net income with some bank statements and a P&L.

  4. If you own 25% or more, but not 100% of the business, it is possible to get a business bank statement loan; but may be difficult. In these cases, it is best to transfer all your income to your personal bank account and verify income with personal accounts.

Personal Bank Statement program tips

The personal bank statement programs are easier, because the lender does not need to verify business expenses. It is assumed that your net income is represented by the deposits into your personal bank account. Here are some tips that will help you with these programs.

  1. Use only one checking account. Some people regularly use two or more bank accounts. Most lenders will not take the time to assess multiple accounts and will only use one account to verify your cashflow. An exception may be if you have a separate account for an investment property, but all self-employment income goes into your main checking account.

  2. They deduct transfers from savings accounts, lines of credit, and any non-recurring income (e.g. you sold a property and got one lump sum) from your cashflow. There may be exceptions; but keep this in mind.

  3. If you use a joint checking account, either both of you will need to be on the loan or they will use 50% of the total deposits to qualify. This is important if one spouse has poor credit or high debt and adding him or her to the loan will cause problems. If this may be an issue for you, call me to discuss strategies that will help you.

I hope these tips help you prepare for loan approval on bank statement programs. If you have questions or want help assessing your situation, you can contact me at 877-728-2008;

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