A PAYG employee can verify income with two recent payslips. Self employed borrowers need to demonstrate income through business financial statements and personal tax returns. Lenders look at the net profit of your business - or your share of it - over the past two financial years and typically average the two figures.
If your income has been increasing year on year, some lenders will use the more recent year only, which can be advantageous. If it has been declining, lenders may use the lower figure or average the two. Consistency and trend matter.
Most lenders apply what are known as add backs - adjustments that add certain non-cash expenses back to your taxable income to reflect your true cash income. Common add backs include depreciation and one-off expenses. Different lenders have different add back policies, and this can meaningfully change your assessed income.
A full doc application uses your tax returns and financial statements to verify income. This is the standard route and gives you access to the same range of products and rates as any other borrower. Most lenders require two years of financials for a full doc application.
A low doc application uses alternative income verification - typically an accountant's declaration, BAS statements, or business bank statements. Low doc products are designed for borrowers who are self employed but whose tax returns do not yet cover two full years, or whose taxable income does not reflect their actual earnings.
Low doc loans generally require a larger deposit - often 20% or more - and carry higher interest rates. They are the right tool for the right situation, but a broker will always explore whether you can qualify for a full doc product first.
For a full doc application, you will typically need: personal tax returns for the last two years, Notices of Assessment from the ATO, business financial statements (profit and loss, balance sheet) for the last two years, and your business tax returns if you operate through a company or trust. GST registration and BAS statements are also commonly requested.
Your broker will prepare a checklist based on your structure - sole trader, partnership, company, or trust - because each structure has slightly different documentation requirements.
The most common challenge for self employed borrowers is that tax-minimisation strategies reduce taxable income - which is exactly what lenders use to assess capacity. A business with strong revenue may show a modest net profit after expenses and depreciation, which reduces the loan amount available on paper.
Brokers who work regularly with self employed borrowers know which lenders take the most favourable approach to add backs, which lenders allow the use of the most recent year's income rather than the average, and which lenders offer competitive low doc products when full doc is not possible. Applying to the wrong lender with the wrong structure is the most common mistake.
Jason and Steve work with self employed borrowers regularly. We know which lenders treat business income most favourably, and we will find the right fit for your situation at no cost to you.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.