Not being able to qualify for loans as a business owner
Eli FacklerPro Member
Member since 2025 · 11 posts · 16 votesNot being able to qualify for loans as a business owner
Most Popular Reply
Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 500 votesHave you thought about DSCR loans or fix and flip loans if an investment property? They are not based on your personal income beyond having the money for the down payment and closing costs depending on how the loan is structured. A HELOC is a DTI loan but the above loans are not. Many investors use them to scale more quickly, due to DTI issues or just want less paperwork.
More on DSCR loans: DSCR loans won't use your income to underwrite the loan. DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals. Happy to connect to discuss further.
Bright Skyline518 Reviews
11 Replies
- 5moStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 500 votes
Have you thought about DSCR loans or fix and flip loans if an investment property? They are not based on your personal income beyond having the money for the down payment and closing costs depending on how the loan is structured. A HELOC is a DTI loan but the above loans are not. Many investors use them to scale more quickly, due to DTI issues or just want less paperwork.
More on DSCR loans: DSCR loans won't use your income to underwrite the loan. DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals. Happy to connect to discuss further.
Bright Skyline518 Reviews - 5moAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 652 posts · 314 votes
Hey Eli,
For sure what Stacy said, DSCR, and even Hard-money/Fix and Flip loans have a much different underwriting process that should keep you in a good spot to purchase and refinance investments.
Specifically, getting outside Fannie/Freddie guidelines, DSCR notes are really only concerned if the deal itself makes sense. They also have basic guidelines towards what your credit score; so keep an eye on your usage as a Small Business Owner.
Overall, DSCR is a great way to get around DTI and keep investing. It might be helpful to sit or talk with a mentor, or even a Broker, in the space and walk through a scenario or two based on your area to help get a grasp on it and lay out expectations.
The first step will be the toughest, but happy to connect and help if I can
Good luck!
- 5moJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Eli Fackler:
I am a business owner which is great but one of the biggest issues I have is qualifying for loans, to the IRS I "don't make very much money". I am attempting to take a heloc out on my primary residence but the issue I am running into is the bank says my DTI will be too high. I am planning on using this money for a BRRRR and I am worried when I go to refinance, I won't be able to qualify for a loan that large as I am already struggling to get a heloc now at a lower value.
Hey @Eli Fackler, welcome to the BP Forum! Can you share more details about the property you're looking to BRRRR?
- 5moKyle HendricksPro MemberLender · Member since 2021 · 170 posts · 74 votes
Portfolio products like bank statement loans (for biz owners), DSCR, and others are typically the way to go. I do a lot of business owner loans. Bank statement or asset depletion are a good place to start. Happy to be a resource. Feel free to call or text.
- 5moErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Eli Fackler:
I am a business owner which is great but one of the biggest issues I have is qualifying for loans, to the IRS I "don't make very much money". I am attempting to take a heloc out on my primary residence but the issue I am running into is the bank says my DTI will be too high. I am planning on using this money for a BRRRR and I am worried when I go to refinance, I won't be able to qualify for a loan that large as I am already struggling to get a heloc now at a lower value.
There are lenders that offer stated income, P&L only, and bank statement style HELOANS. Maybe you might want to connect with a local broker.
LuxePrivate Investments LLC 572 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes5mo
Another option to consider as a business owner is to tax it as a s corporation where you are an employee and collect a salary
note not an accountant or providing advice. - ask an accountant about it.
7e investments53 Reviews - Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes5mo
We at the One Brokersge work with lenders all the time who have similar situations. Depending on the exact situation we have done bank statements based loans, DSCR or other creative ways to solve it!
- 4moJames JonesPro MemberInvestor · Collierville, TN 38017 · Member since 2017 · 597 posts · 449 votes
This is one of the biggest traps for business owners.
On paper, you “don’t make much.”
In reality, you control cash flow and deductions.
Banks qualify off tax returns.
The IRS version of you is hurting your lending version.
A few things to think through:
Conventional HELOC is DTI-driven
If your taxable income is low, DTI gets tight fast.
That doesn’t mean you’re unqualified for everything.
It means you’re in the wrong lane.
BRRRR refi doesn't have to be income-based
If you’re worried about qualifying later, look into:
• DSCR loans
• Bank statement loans
• Portfolio lenders
DSCR qualifies based on property income, not your personal DTI.
If the property covers itself at 1.1–1.25 DSCR, your personal income becomes less relevant.
Be careful stacking personal debt
Using a HELOC on your primary to fund BRRRRs increases:
• Personal exposure
• DTI
• Stress
If the first deal doesn’t stabilize fast, it compounds.
Strategy alignment
If you can't qualify for a HELOC at a lower value, you need to ask:
Is the issue:
• Too many write-offs?
• Too much existing debt?
• Inconsistent income reporting?
• Or wrong loan product?
Sometimes the fix is:
Plan 1–2 tax years ahead with your CPA to optimize for lending, not just taxes.
- 3moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Hey Eli, a little late to this one, this is actually one of the most common frustrations I hear from business owners, and it comes down to a disconnect between how the IRS sees your income and how lenders see it. When you aggressively write off expenses and depreciation (which it sounds like you do and you absolutely should be doing), your taxable income on paper drops like you mentioned.
A few of the responses here nailed it. The ones mentioning bank statement loans and DSCR loans are pointing you in the right direction, non-QM lenders who use gross deposits or bank statements instead of tax returns are going to be your best friend in this situation. That's a real solution worth exploring.
On the tax side, one thing worth having a real conversation about is how your business is structured and whether your S-Corp salary (if you have one) is being set up in a way that helps your DTI picture without blowing up your tax savings. You also want to make sure that your CPA knows what they are doing on the real estate side of things, too, because you don't want to miss out on any opportunities there, like cost segregation, bonus depreciation, or real estate professional status if it applies to your situation. There's a balance there that a good CPA and a good mortgage broker need to work through together.
There are some great lenders right here on BP you can connect with, and I know a few I'm happy to refer you to who offer both products. And on the CPA front, I would look for someone who specifically works with real estate investors and understands both sides of the equation, minimizing taxes and keeping your income picture clean for lending purposes, because those two goals can pull in opposite directions. Happy to connect!
INVESTOR FRIENDLY CPA®5241 Reviews
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