07/25/2020
Trying to qualify an Entrepreneur or business for self-owner can be a bit complex as there are different ways they can pay themselves. So, it is tricky to get financing for them. How they are pay themselves and declare the income and expenses. Many business owners are not fully knowledgeable about the difference between a sole proprietor and an incorporated business.
There are advantages and disadvantages and your accountant should help you to identify what is best for your business and the financial aspect.
I will leave that guidance to the pro …
What I want to talk about is about what we look at and why we need to know these details.
As you know the lender will want to see your income, as a sole proprietor you may take a draw from your profits to pay yourself but the business is parts and parcel of your personal tax declaration. So, the declared business income and expenses in your T1 for the last 2-years, will have an influence on what you can qualify for. The deposits in your bank accounts and invoices will also prove your income intake.
If your business is incorporated, you may either pay yourself a draw or you may pay yourself a fixed salary every week or bi-weekly or even monthly, and or you can be given a dividend payment. So, owner will issue a T4 from the corporation and other will not. If a T4 is issued then we can use the information on that T4 as income but if it a draw then we need to see the income deposits in the bank account and compared to invoices to support the declared income.
A detailed analysis of the expenses is required and either deduct or add expenses to determine the actual income. Lastly if the last year income is lower than the previous year, then the lender will use the lower income to qualify the borrower. From time to time, depending on the situation, we may need to use the average of the last 2-years income. So, as you can see, it is a bit complex but with someone like me who knows what to look for, I would say you are in good hands!
