Self-employed borrowers often face challenges qualifying for traditional loans due to the way business income is reported. Fortunately, there are a variety of financing options tailored for their unique financial circumstances. From DSCR loans and bank statement loans to HELOCs and alternative income documentation, self-employed borrowers have several paths to secure funding. Let’s explore these options and how they can work for you.

1. Debt Service Coverage Ratio (DSCR) Loans

DSCR loans are an excellent choice for self-employed borrowers, especially those investing in real estate.

How DSCR Loans Work: Instead of personal income, these loans evaluate the property’s rental income using a DSCR ratio. This metric indicates the property’s ability to cover its costs, including the mortgage, taxes, and insurance.

Why Choose DSCR Loans? For borrowers with inconsistent personal income, these loans focus on the income-generating potential of the investment property to qualify instead of traditional requirements.

2. Home Equity Lines of Credit (HELOCs)

For self-employed borrowers that currently own a home, HELOCs can provide access to cash through the home’s equity.

How HELOCs Work: Borrowers can draw funds as needed up to the credit limit and pay interest only on the amount borrowed.

Why Choose HELOCs? Depending on the amount of equity available, a HELOC can provide for a down payment or the entire purchase of another home.

Advantages: Quick access to funds allows you to be competitive on your offers and flexibility to access funds over time.

3. Alternative Income Documentation

Self-employed borrowers can use alternative income verification methods to qualify for loans, bypassing traditional requirements like tax returns.

Bank Statement Feature: Bank statement loans assess actual cash flow by reviewing a borrower’s personal or business bank statements to qualify income, rather than relying on tax returns.

How They Work: Borrowers provide 12–24 months of bank statements, which lenders use to calculate income.

• No tax returns or W-2s are needed.
• Suitable for primary residences, second homes, and investment properties.
• Ideal for self-employed individuals with strong cash flow but lower reported taxable income due to deductions or write-offs.

Audited Profit and Loss (P&L) Statements

A 12-month P&L statement, prepared and audited by a CPA, can provide an accurate snapshot of income and expenses.

Why It Works: Demonstrates the borrower’s ability to manage income and expenses effectively, even without traditional income documentation.

1-Year Tax Return with Borrower-Prepared P&L

This option is helpful for those newly self-employed or with fluctuating income.

What’s Required: One year of personal and business tax returns, paired with a borrower-prepared P&L that accounts for the time since the last tax filing.

Asset Depletion Feature

Allows borrowers to qualify using substantial liquid assets instead of traditional income from employment.

How It Works: Monthly income is calculated by dividing total liquid assets by a 7-year period.

Eligible Liquid Assets: Cash, money market accounts, stocks, ETFs, retirement accounts, and other assets that can be quickly converted to cash with minimal impact on value.

Who Benefits? Borrowers with significant assets but limited reportable income.

Tips for Self-Employed Borrowers

Prepare Your Documentation: Have bank statements, P&L statements, and asset details ready.

Explore Flexible Options: Work with a lender specializing in self-employed financing to find tailored solutions.

Compare Costs: Evaluate interest rates, fees, and terms to choose the most cost-effective option.

The Bottom Line

Self-employed borrowers now have access to a variety of flexible loan products designed to accommodate non-traditional income profiles. Whether you opt for a DSCR loan, HELOC, or alternative income documentation like bank statement, audited P&Ls or asset depletion loans, there’s a potential solution to meet your needs.

Interested in exploring your options? Connect with us today to find the financing solution that works best for your unique circumstances.