Self-employed people are often doing well financially and still get turned down by banks. The problem is usually paperwork, not money: tax returns that show less income than the business really produces. Private lenders can look past that, and the right plan can get you back to a bank within a year or two.

Why banks say no to the self-employed

Banks usually qualify you based on the income on your tax returns, often averaged over two years. If you write off expenses to reduce tax, which is legal and normal, your reported income can be far below what you actually earn. Newer businesses may not have two years of returns at all.

How private lenders look at it

  • Equity first. How much of your home’s value is left after all mortgages. See loan-to-value.
  • Real cash flow. Business bank statements can show money coming in.
  • Stability. How long you’ve been in business and in your industry.
  • Your plan. How you’ll refinance or repay when the term ends.

Common situations

  • Contractors and trades with seasonal or uneven income
  • Business owners who pay themselves through dividends
  • Commission-based salespeople
  • People who recently left a job to start a business
  • Owners with CRA balances that need to be cleared. See tax arrears.

What to have ready

  • Business bank statements, often several months
  • Notices of assessment from the CRA
  • Business registration or incorporation documents
  • A short description of the business

See the full document checklist.

Planning your way back to a bank

For self-employed borrowers, the exit is often about documenting income:

  1. Talk to your accountant about how your next returns will look to a lender.
  2. File on time and keep your CRA account current.
  3. Keep business and personal finances separate.
  4. Build two years of history if your business is new.
  5. Check in with your broker before filing, not after.

Some alternative lenders also have programs for self-employed borrowers that may be a stepping stone. See your exit strategy.

Get options that fit how you earn

A licensed broker who works with self-employed clients can tell you which lenders understand your type of income, starting with the least expensive.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.