How do the banks want to see self employed salary?

Hi everyone,

We have started a small business in July. My understanding is that the ABN needs to be two years old before we can borrow with this income.

Our payslips are generated in Quickbooks. I can move the money from the trust business account into our personal account in two ways:
1. Weekly salary set amounts
2. Move lump sums as soon as they appear in the business account to quickly offset our mortgage.

What do the banks prefer to see? Does it matter?

Thanks in advance.

 

Generally speaking they want to see that the business has been running for 2+ years

They will want:

- 2 years of biz returns and financial statements
- 2 years of individual returns
- 2 years of ATO NOA’s

Some banks will only require the most recent years returns (ANZ for instance).

They’re not going to care about how much you pay yourself on a regular basis.

Cheers

Jamie

 

Jamie's comments above are correct and also depends on the LVR.

If you set up your business in July this year and the LVR is 80% then your only option is to do the loan via ANZ commercial as they may rely on the business's forecast income for servicing.

You need your Accountant to prepare the cashflow forecasts and you need to adequately show past experience and how you have transitioned to the new business. Ability to show invoices, contracts, etc will help depending on your line of work.

 

One small caveat, most lenders are no longer adding back the base 9.5% super. If borrowing power is your only concern, paying all profit as a dividend (or distribution) will generally allow you to borrow more than paying profit out as a salary.

 

Is dividend income shaded?

 

If you want to break it down as simply as possible, banks will look at the flows of the business for the year. Imagine you pay yourself a zero wage, see what the income/expense profile looks like (i.e. profit) and thats what lenders will use.

How you distribute it isn't as relevant (whether you keep profits by not paying salary, etc). As Simon mentioned, it does make a difference and offers scope to massage the figures to your advantage (e.g. not paying super/salary), but the above is the simplest way to understand it first.

Then there's additional eligibility criteria for standard resi loans, e.g. 2 year ABNs, etc.

You can also go down the low doc route where options exist for shorter ABNs, difficult income verification, etc.

 

Not self-employed dividend income.