Business loss effect on servicibility

[john3]

Hi,

I have a full time job and also running a side business. If my business made a loss of about $10K in each of the last 2 financial years, would the bank simply deduct one years loss of $10K from my PAYG income to calculate servicibility or would they deduct $20K (accumulated loss of past 2 Financial years) to calculate servicibility.

Thanks in advance for your answers.

John

 

[Redom]

Hi,

I have a full time job and also running a side business. If my business made a loss of about $10K in each of the last 2 financial years, would the bank simply deduct one years loss of $10K from my PAYG income to calculate servicibility or would they deduct $20K (accumulated loss of past 2 Financial years) to calculate servicibility.

Thanks in advance for your answers.

John

Serviceability generally uses income per year. So you're looking at a $10k hit.

Is the company a sole trader or company? If its a company, you will need your accountant to verify the loss and whether the company has any outstanding liabilities (letter).

 

[Marty McDonald]

Not to be too tricky but if you are a sole trader you would not necessarily be asked for tax returns . If you provide them then the $10K would come off your PAYG income.

 

[jpcashflow]

Hi

Hi,

Even as a Sole Trader and a side business, I am finding more and more banks ask for Tax returns to see how the loss occurred.

Most lenders would see this as a LOSS so it would effect your borrowing power.

 

[john3]

Thanks for your replies.

The business is trading as a Company. I have given the Financials to my broker and he says he will need to deduct the accumulated loss of $20K from my PAYG income. It seems I may be better off getting my accountant to state the last years loss in the letter instead of providing the financials which also has the accumulated loss figure. Would that letter suffice or does the lender ask for the financials anyway if the accountant's letter says it is trading at a loss?

John

 

[Terry_w]

Thanks for your replies.

The business is trading as a Company. I have given the Financials to my broker and he says he will need to deduct the accumulated loss of $20K from my PAYG income. It seems I may be better off getting my accountant to state the last years loss in the letter instead of providing the financials which also has the accumulated loss figure. Would that letter suffice or does the lender ask for the financials anyway if the accountant's letter says it is trading at a loss?

John

Lender will likely ask for financials of the company if you are a director.

 

[Jamie M]

Hi john

Short answer is that they'll shave $10k of your income.

If you're a director you'll need to show returns - if you're a sole trader, it would be expected that you inform them of the loss but as its unlikely they'll find this out themselves (you won't be a listed director anywhere).

Cheers

Jamie

 

[Marty McDonald]

Looking at 2 different things here.

PAYG income is assessed as what it will be in the future based on todays earnings. SE income is assessed as what it will be in the future based on historical earnings usually over 2 years.

As your main assessable income is PAYG they should go off your CURRENT income but they will also deduct $10K from it to reflect the average of your businesses performance over the last 2 years.

They should not deduct the full $20K for same reasoning as they wouldn't accept retained profit as current income. ie doesn't necessarily reflect the immediate years history.

 

[Mick C]

10k hit only with all lenders, the only exception is stupid ANZ once in a while they will look at the "rolling" lost...but that's the "older" credit assessors...a quick call to the BDM or ask to change assessor normally does the trick ...and we are back on track

 

[Rolf Latham]

long answer is

Probably 10 k

BUT if part of the loss isnt due to trading and is a paper loss from depreciation of some sort

Happy days

ta

rolf