Self-employed and applying: how lenders read your financials

Self-employed borrowers are assessed on documents rather than payslips, and the documents are prepared for a different purpose than lending. Most lenders want two years of accountant-prepared financial statements and tax returns, alongside a summary of earnings from Inland Revenue. Where the business is newer, some lenders will accept one year, and non-bank lenders have more flexibility again, usually at a higher rate. The key idea is add-backs. Your taxable profit is not the same as your income for lending purposes. Depreciation, interest on business debt, one-off expenses, and in some cases a portion of motor vehicle costs are typically added back because they reduce taxable profit without reducing the money available to service a loan. Interest deductibility rules have changed several times, so it is worth confirming how your accountant has treated it before your application rather than during it. Structure matters too. Whether you trade as a sole trader, a company or a trust changes what a lender looks at, who the borrower is, and how distributions are treated. If income is retained in a company rather than drawn, a lender will want to see that the profit is genuinely available to you. Provisional tax and GST payments are not usually counted as expenses for servicing, which is good news, but they do affect the cash sitting in your account on statement day. The practical advice: tell your accountant a lender is going to read these accounts before they are finalised. Ask them what your income looks like for lending purposes, not just for tax. A few weeks of preparation often makes a meaningful difference to the assessed number.