Qualify Without Bank Statements With Profit and Loss Account
P&L Statement Only Product Eligibility. Qualify without bank Statements with Profit and Loss account
Qualify without bank Statements with Profit and Loss account is made possible through the P&L Statement Only program, a distinct Non-QM product line designed exclusively for self-employed borrowers. This option provides an effective alternative when using full tax returns or relying on long-term bank statement averages is not practical or desirable.
| Key Eligibility Requirement | Detail |
| Borrower Type | Self-employed borrower(s) only. |
| Minimum FICO | Minimum score of 700 FICO is required for qualification in some programs. |
| Maximum LTV | Maximum Loan-to-Value (LTV) is typically restricted, such as a Max LTV of 75%. |
| Ownership | Borrowers must have a minimum ownership interest, often 25% or more, or a cumulative 50% minimum ownership for multiple self-employed borrowers. |
| Tax Filing Status | Self-employed borrowers who file their own tax returns are not eligible for this specific program. |
Documentation Requirements (Third-Party Preparation)
To ensure the integrity of the reported income, the P&L statement must be prepared and certified by an independent tax professional, and cannot be prepared by the borrower.
- Required Preparer: The P&L statement must be prepared by a qualified third party, such as a Certified Public Accountant (CPA), IRS Enrolled Agent (EA), or California Tax Education Council (CTEC) registered tax preparer.
- Tax Return Attestation: A critical requirement is that the CPA/EA/CTEC preparing the P&L must have filed the borrower’s most recent business tax returns (or personal/business tax returns).
- Statement Validity: The P&L end date must be less than 90 days old at closing.
- Signing: The prepared P&L statements must be signed by both the borrower(s) with ownership and the CPA/EA/CTEC. The tax professional must include documentation verifying their license is current and active.
Qualifying Income Calculation
The calculation determines the borrower’s share of the net income based on the P&L, subject to reasonableness checks against the industry standard and consistency with the initial loan application.
- Income Formula: Qualifying income is the net income calculated from the business’s P&L Statement, multiplied by the borrower’s percentage of ownership. The resulting income is then typically divided by the number of months covered by the P&L statement (e.g., 12 or 24 months).
- Qualifying Limit: The income used for qualification is the lower of the calculated P&L net income (multiplied by ownership percentage) OR the monthly income disclosed on the initial signed 1003 (loan application).
- Expense Ratio Floor: Expenses on the P&L must be deemed reasonable for the business industry. A minimum expense factor of 20% is expected for gross revenue (for service-related businesses, for example). If the reported expenses are lower than 20% of gross revenue, the net income will be adjusted upward to reflect a 20% expense level for qualifying purposes.
- Non-Cash Add-Backs: Non-cash business expenses listed on the P&L, such as depreciation, depletion, and amortization/casualty losses, may be added back to the net income when computing the qualifying income.
Supplemental Use of Bank Statements (Mandatory Verification)
Although the product is termed “P&L Statement Only,” it does not allow the borrower to qualify without bank statements. Bank statements are required to verify that the P&L’s stated revenues are legitimate.
- Bank Statement Requirement: A minimum of two months of business bank statements covering the most recent period must be provided.
- Revenue Support: The average deposits from these two months of bank statements must support the gross receipts/sales reflected on the P&L statement.
- Tolerance Levels: The total average deposits from the bank statements must generally be greater than, or no less than 10% below, the average monthly sales listed on the P&L. If this tolerance is not met, continuous bank statements may be added to the analysis until the tolerance is satisfied. Our Edge Series requires bank statement deposits to support 80% of the monthly average revenue from the P&L if the tax preparer has not filed the most recent business tax return.
Other Qualification Factors
- Residual Income: This program requires a minimum monthly Residual Income, such as $2,500 (Full Documentation/Bank Statement/1099 Income Only/P&L Statement Only). Residual income is calculated by taking total gross monthly income (from the P&L) and subtracting total monthly debts.
- DTI Limit: The DTI ratio must be calculated (unlike Asset Qualifier or DSCR loans), and is subject to a maximum limit, often 50%, with no exceptions for exceeding this threshold.
- Co-Borrowers: Full documentation from a co-borrower who is not self-employed may be used to supplement the P&L Statement income. However, tax returns for the self-employed borrower must not be provided, otherwise, the loan must be underwritten based on Full Documentation.
FAQ's
The DTI ratio is typically capped at 50% for the P&L Statement Only product. Additionally, borrowers often must meet a minimum monthly Residual Income requirement, such as $2,500.
The P&L Statement Only product is typically subject to a Maximum LTV of 75%.
If tax returns for the borrower are provided, the loan becomes ineligible for the P&L Statement Only product and must be underwritten under Full Documentation guidelines.
Non-cash expenses, such as depreciation, depletion, and amortization/casualty losses, may be added back to the net income reported on the P&L to compute the qualifying income.
Lenders evaluate the P&L’s expense ratio against industry standards. If expenses are deemed too low, the net income is adjusted upward. For example, a minimum expense factor of 20% is often expected for gross revenue. Product-based businesses may require a 40% minimum expense factor.
Lenders compare the average deposits from the required bank statements against the gross revenue on the P&L. For instance, the bank statement deposits must be greater than, or no less than 10% below, the average monthly sales on the P&L.
The CPA, EA, or CTEC preparing the P&L must have filed the borrower’s most recent business tax returns. They must also attest that they reviewed working papers or audited the financials to certify the P&L’s accuracy.
The P&L statement must be completed by an independent third party, such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or CTEC registered tax preparer. The statement must be signed by both the borrower and the preparer.
No. Although the product avoids tax returns, bank statements are required to corroborate the revenue reported on the P&L. For example, some programs require a minimum of two months of business bank statements to support the gross receipts/sales reflected on the P&L.
The product is generally known as the Profit & Loss (P&L) Statement Only program. It is designed for self-employed borrowers who own 25% or more of the business.
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