6 Simple Steps to Calculating Income on a Business Bank Statement Loan

There are several different types of bank statement loans. The most common are personal bank statement loans and business bank statement loans. With personal bank statement loans, you can usually use 100% of the deposits as income from the business deposited into the personal account (some lenders do vary). With business bank statements, the process is a little different.

The below is the process that the majority of NonQM lenders follow (each can vary slightly).

Step 1 - Confirm Ownership of Business + Length of Ownership

You’ll want to ask the borrower how much of the business they own. Some lenders have requirements of 25%, 50%, or 100% to be owned by the borrower. Either way, once you meet that requirement, you’ll need to confirm ownership percentage. If the business has been open less than 24 months, then you’ll definitely be looking at a smaller pool of lenders.

Step 2 - Confirm Number of Bank Statements for that lender / program

The most common business bank statement program calls for an analysis on the last 12 months of business bank statements for that borrower. Some will offer better rates for 24 months included in the file. While only a few allow 2, 3, or 6 month analysis (typically higher rates).

Step 3 - Add Up Business Deposits for Each Account

You’ll go through each account and add up deposits. Some lenders do have pre-underwriting tools or processes where you can upload/send the bank statements to the lender and they’ll calculate before a pre-approval. However, we always suggest trying to calculating it beforehand so you understand how it works (just like learning math back in school, understanding the methods will give you a better understanding of the program).

Step 4 - Exclude any Non-Revenue or Excluded Deposits

Common examples of deposits that many lenders won’t allow you to use include card returns (not income), transfers from other accounts (since it’s not new money - just being transferred), and business loans (since this is a deposit and influx of cash but not related to revenue).

Step 5 - Look for any Negative Trends

Not all, but the majority of lenders will make sure there are no major negative trends (aka if the last 3 months of deposits are MUCH less than the previous 9 months, an underwriter will likely call this out asking for an explanation or possible counter/denial). If there is a trend, this is something to try to shop for in a lender prior to submitting.

Step 6 - Final Calculation Using the Expense Ratio

Once you’ve completed the first 5 steps, you’ll want to calculate with the below…

• Add up all the business deposits (from step 3)
• Then subtract all the deposits you can’t use (from step 4)
• Once you do this, divide that by the number of statements used (most commonly 12)
• And multiply by business ownership (if borrower owns 100%, you can skip this step)
• Then multiple by the expense ratio (most expense ratios are 50% but some lenders allow you to use more, click here to learn more about expense ratios and the different options)
• And you’re left with your monthly qualifying income on a business bank statement loan!

Click here to view a list of NonQM lenders so you can find the right lender for your borrower!