Why a profitable small business can still struggle to get a home loan

An electrician can invoice $500,000 in a year, employ a small team and keep the business profitable, then be told the bank will assess them on roughly $120,000. If you are the person who built that business, it is a hard number to hear. But it comes down to what the bank calls income.

When a business owner tells me things are going well, I start with profit, not sales. I want to know what is left after the business pays its bills and how steady that figure has been. A lender asks much the same thing, with its own rules about which records count.

Why does the bank ignore my turnover?

It does not ignore it. Turnover tells the bank how active the business is, but it does not show how much the owner earns. Take that $500,000 electrical business. If wages, materials, vehicles, insurance and other running costs total $380,000, the starting profit is $120,000. The bank cannot use the full $500,000 as personal income.

I would also want to know how much cash the business needs to keep operating. Money in a business account might be set aside for tax, staff or supplier invoices. A large balance just after customers have paid is encouraging, but it is only one day in the life of the business.

For a sole trader, the tax return is often the clearest starting point. A company director might receive wages and dividends while leaving profit inside the company. That takes a bit more work to untangle.

Why do two lenders read the same accounts differently?

The tricky applications are often the ones where the business has improved. The owner knows how much stronger things are now. The tax returns still carry that earlier year, though. Some lenders average the two. Others have ways to assess the latest year if the applicant meets their requirements.

Here is a simplified example of a sole trader whose net profit rose from $92,000 to $138,000. The business also recorded $12,000 of depreciation in the latest year.

Those are three possible readings of an invented example, not actual loan offers. The last figure applies only if the lender permits that adjustment and the financial records support it. The point is how different the starting income can look before anyone has discussed the deposit, living expenses or debts.

Westpac, for example, publicly describes both a one year assessment and a standard two year assessment for eligible business owners. Commonwealth Bank lists the documents self-employed borrowers may need, and says its list is a general guide. This is why I encourage business owners to understand how self-employed home loans are assessed before they approach a lender. There is no single rule that suits every business.

Do tax deductions hurt your borrowing power?

They can, although the effect is not always as simple as the taxable profit figure suggests. A sensible business owner claims the deductions the tax law allows. That is the accountant’s job to get right. A mortgage lender then has to decide which of those expenses affect the cash available to make repayments.

Depreciation is a good example. A business may have a tax deduction for the decline in value of equipment without spending that amount again in the same year. Some lenders will consider adding an eligible amount back. A genuine one off expense may also deserve an explanation. Ordinary costs such as wages, rent and fuel are different. The business needs to pay them to keep trading.

Trying to make a tax return look better for the bank is the wrong way around. An accountant should claim the deductions properly. My job is to work out whether a lender will consider an adjustment, with the records to support it. I would rather sort that out early than argue about it after an application has been declined.

What if I pay myself a salary through my company?

A director might draw a salary of $75,000 while the company shows another $60,000 in profit. It is tempting to add those numbers together and say the household earns $135,000. The bank may not see it that way.

It has to establish who owns the company, how much of the profit is available to the borrower and whether the company needs to retain funds for tax or working capital. It must also avoid counting the same income twice. Trust distributions and related businesses bring their own questions.

This is one reason I like to see the company financial statements alongside the individual tax return. Looking at only one can leave half the story out.

Why can I afford my rent but still fail the loan test?

The bank does not calculate a new mortgage by asking whether you have managed the rent so far. It includes your household spending, existing commitments and a buffer for higher interest rates. Business owners can have equipment loans, personal car finance, credit card limits or tax payment arrangements that also need to be considered.

For banks, the Australian Prudential Regulation Authority maintained a minimum mortgage serviceability buffer of three percentage points in May 2026. A borrower taking a loan at, say, 6 per cent is generally assessed at no less than 9 per cent for this part of the test. That is not the rate they pay. It is a way of checking whether the loan would remain manageable if conditions changed.

A successful business may therefore pass the income check and still fall short on the repayment calculation. That result needs a proper look at all the numbers, not just the latest tax return.

What if the business has only one good year?

Do not assume that means waiting another twelve months. Some lenders have pathways using one year of financial statements. Others may consider alternative evidence such as business activity statements and bank statements, depending on their product and policy. The price, deposit requirements and available lenders can be different.

The danger is jumping to a specialist or alternative documentation loan without checking whether a mainstream lender can use the documents already available. A lower rate with more paperwork can be a better outcome than a faster approval that costs more over time. The right choice depends on the actual figures.

What should a business owner do before looking at property?

I would start by putting the business and personal numbers side by side. There is no benefit in setting a purchase budget from a turnover figure that the bank will never count.

1. Get the most recent one or two years of personal tax returns and notices of assessment. Add business returns, profit and loss statements and balance sheets where relevant.
2. Ask the accountant to identify unusual expenses, depreciation and changes in profit, then explain them with supporting records.
3. List every personal and relevant business debt, including equipment finance and credit card limits. Check whether any tax debts or payment arrangements need to be explained.
4. Compare how the main lender assessment methods would treat your actual income. A one year option may help a growing business, but it may not be the best result for every borrower.
5. Get a borrowing assessment before making an offer. A deposit alone does not tell you what you can afford to borrow.

A profitable business deserves a proper reading, but the owner needs a realistic borrowing figure before shopping for a home. I would rather have that conversation with the accounts on the table than after someone has found the house they want.

About the author

Charles Touma is Director and Principal Mortgage Broker at Links Property Finance in Sydney’s Inner West. Before opening the brokerage in 2026, he worked at Macquarie Group and in financial planning. He works with business owners on home loans and refinancing.