ABN sole trader - income assumption

Hi, I've read that most lenders require income from an ABN for the last 2 years. What income is used for lender's serviceability calcs? Average, minimum, most recent, maximum (hopeful)?

Thanks

 

Depends on the lender. Some will allow the use of 1 year financials, where ABN has been registered for 2 years. Where you have 2 years financials available, if the most recent year is higher - some lenders will allow you to use the most recent year, so long as you can explain the difference. Others may look at averaging income.

 

Most lenders require ABN registered for 2 years but when it comes to using the income for servicing there are different rules assuming we are talking full doc lending. ANZ require one years financials regardless of LVR, Westpac and St George require one years financials at 80% and 2 for over 80% LVR, CBA require one years financials also regardless of LVR however they do look at the previous years financials and any major variances may raises issues - essentially the policy isn't as water tight as ANZ's policy, and so on. Most of the other lenders look at the 2 years financials and are quite strict on the income they use.

There is some flexibility if you have changed ABN's - moving from sole trader or a company with a new ABN, etc provided you can show the bread crumbs.

Lo doc lending requires a varying types of documents with some lenders accepting just an Accountant's declaration to combos of declarations, BAS and bank statements.

Then there are specialist lenders that work off 1 day ABN's, 3 month ABN's, etc but they are more expensive than your mainstream lenders.

 

Thanks so much for your detailed replies

 

The general rule of thumb is two years registered ABN, two years financials for income verification. (they look at the two years net profit after addbacks with a few different ways to calculate depending on the scenario)

By exception if the numbers and overall deal is strong, it's possible to get mainstream lending with 1 years financials + ABN registration, or ~1 day-6 months for specialist/low doc lending.

 

Thanks Corey. I was wondering more specifically if they request two years worth, do they take the most recent, average, minimum or maximum as the income. From PropertyTwin's response, it seems to be lender dependent with some using the average of the two years.

Situation where this may be important is business ramp up especially if business was only operating for a small part of the first FY. Another situation I can think of is to push revenue into the following FY resulting in a temporary uplift in reported revenue for one FY - Not sure if this is actually legal or feasible as you wouldn't get paid until you invoiced in the next FY.