Your business bank account often tells a clearer story than your tax return. Money comes in every week, the bills get paid, and the balance grows. But when you apply for a home loan, most banks still want two years of lodged tax returns, and those can be months or even years behind where your business is today.

A bank statement loan is one way around that. Here’s how they work, what lenders look for in your statements, and how to put your best foot forward.

What is a bank statement loan?

A bank statement loan is a type of low-doc (sometimes called alt-doc) home loan for self-employed borrowers. Instead of relying on tax returns and financial statements, the lender uses your business bank statements as the main evidence of your income. Moneysmart describes a low-doc loan as one that “requires less financial documentation to prove income, assets and liabilities than a standard loan”.

Less paperwork doesn’t mean less checking. Under responsible lending rules, the lender still has to be satisfied that you can afford the repayments without hardship. Your statements simply become the main way you prove it.

Who are bank statement loans for?

• Sole traders, contractors and small business owners whose income runs through a dedicated business account
• Businesses that have grown quickly, so the last lodged tax return understates what you earn now
• Owners whose accountant hasn’t finished the latest financials yet
• People whose taxable income is low on paper because of legitimate deductions, even though cash flow is strong

They’re not for PAYG employees. If you’re paid a wage by an employer you don’t own, a standard home loan with payslips is the usual path.

How many months of statements will you need?

It depends on the lender. Many ask for somewhere between 6 and 12 months of business bank statements, and some want to see 12 months or more so they can account for seasonal ups and downs. Some lenders accept bank statements on their own, while others want them alongside your BAS, an accountant’s letter or a signed income declaration.

You’ll usually also need an active ABN. Many lenders want it registered for at least 12 months, though some specialist lenders will consider a shorter history.

How do lenders work out your income?

Lenders don’t simply treat every dollar deposited as income. Your business has costs, and the lender has to allow for them. Methods vary, but they generally work along these lines:

• Total business deposits are added up over the statement period, excluding transfers between your own accounts, loan drawdowns and other money that isn’t trading income
• An allowance for expenses is applied, either by subtracting actual business outgoings or by applying a set percentage that varies by lender and industry
• The result is checked against your declared income and, where available, your BAS, to make sure the numbers line up

Because each lender calculates this differently, the same set of statements can support quite different borrowing amounts depending on where you apply.

What lenders look for in your statements

• Regular, consistent deposits rather than a few large one-off payments
• A clean account, with few or no dishonoured payments, overdrawn periods or missed loan repayments
• Clear separation between business and personal spending
• No surprises, such as heavy gambling transactions or repayments to debts you haven’t disclosed, including buy now, pay later accounts
• GST that makes sense. The ATO requires GST registration once your GST turnover reaches $75,000 a year. If your deposits suggest turnover above that and you’re not registered, expect questions.

One unusual transaction rarely sinks an application on its own. Lenders look at the full picture, so be ready to explain anything out of the ordinary.

The trade-offs

Bank statement loans are mostly offered by specialist and non-bank lenders, and they’re usually priced higher than a standard full-doc loan. Some lenders cap how much you can borrow against the property’s value lower than they would for a full-doc loan, and lenders mortgage insurance or a risk fee may apply at higher loan-to-value ratios. A bigger deposit and a clean credit history generally narrow the gap.

Many borrowers treat a bank statement loan as a bridge. Once your tax returns are lodged and reflect your real income, you can look at refinancing to a sharper full-doc rate.

How to prepare

• Run all business income through one business account if you can
• Keep personal spending out of the business account in the months before you apply
• Keep your BAS lodgements up to date, as many lenders cross-check them
• Gather notes and records explaining any large or unusual deposits or withdrawals
• List every debt you have, business and personal, so nothing turns up unexpectedly

A typical scenario

Take an electrician who left a salaried job two years ago to contract for local builders. Their first tax return shows a modest part-year income, and the second won’t be lodged for a few months. Their business account, though, shows steady weekly payments from three builders over the past 12 months. A bank statement lender could assess their income from those statements and their BAS, allowing them to buy now with a 20% deposit rather than wait for the next return.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

Can I use personal bank statements instead of business ones?

Some lenders will consider personal statements if your business income is paid into a personal account, but a separate business account usually makes your application much easier to assess.

Do I still need to be registered for GST?

If your GST turnover is $75,000 a year or more, the ATO requires you to be registered, and most lenders will expect it. If you’re below that threshold, some lenders will still consider you.

Will a bank statement loan affect my credit score?

Any home loan application is recorded on your credit file. That’s why it pays to choose the right lender first rather than applying to several and hoping one says yes.

Can I use a bank statement loan for an investment property?

Often, yes. Many lenders offer bank statement loans for investment purchases and refinances as well as owner-occupied homes, subject to their policy.

Let your statements do the talking

Bank statement lending policies differ widely, from how many months a lender wants to how it allows for expenses. We work with self-employed borrowers every day and can match your statements to lenders who will assess them fairly, before anything goes on your credit file.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t credit or tax advice. Home loans are arranged by Stratium Finance Group Pty Ltd (ABN 65 696 556 804), Corporate Credit Representative 578600 of Yellow Brick Road Aggregation Pty Ltd, ACL 390261. All loans are subject to lender approval, terms, conditions, fees and charges.