Bank statement loan

Many self-employed borrowers reduce taxable income through legitimate deductions, which leaves their tax returns showing less income than the business actually supports. Bank statement programs address that by looking at cash flow.

The lender totals eligible deposits over the statement period, excluding transfers between accounts, loan proceeds and other non-business money, then divides by the number of months. An expense factor is applied to business accounts to approximate costs; it may be a set percentage or come from a CPA or tax preparer letter. Personal-account programs often use deposits with less adjustment.

Worked example. A contractor's business account shows average eligible deposits of $20,000 a month over 24 months. With a 50% expense factor, qualifying income is $10,000 a month. If the contractor's tax returns show net income of $6,000 a month after write-offs, the bank statement approach supports a meaningfully larger loan.

These loans are offered by non-QM lenders, each with its own guidelines for credit, reserves, LTV and expense factors. Borrowers should expect higher costs than conventional loans and should compare that cost against simply qualifying on tax returns. The bank statement loan calculator converts deposits into an estimated qualifying income.