How do banks calculate the income of self-employed people?

With employees and civil servants one can read incomes off mostly completely simply in the pay slips. But how does it work for the self-employed?? How do banks determine the income of self-employed persons or freelancers when granting loans??

Banks take very different approaches to determining self-employment income. What they all have in common, however, is that they calculate the income on the basis of the actual income of the last 2-3 years. This distinguishes self-employed people from employees or civil servants, for whom the income of the last few years is quite uninteresting. Self-employed persons must therefore go far into the past and provide corresponding proof of income. This proof of income consists of the last tax assessment (and the corresponding tax returns) as well as the profit calculations (income surplus account) or corresponding balance sheets.

So self-employed people need the provable figures of the last 3 years (a few banks are also satisfied with the figures of the last 2 years). If these figures are available, each bank, savings bank or other lender proceeds differently. Some banks use the profit of the last year for the income. The others take the average of the last 3 years. Still others set the lowest value of the last 3 years. As already mentioned: each bank cooks its own soup.

Who less than 2 resp. 3 years self-employed is considered by the banks as a business start-up. That's where things get pretty tight when it comes to real estate financing, because only a few banks will let you do that. This is because experience has shown that self-employed people fail mainly in the first 2 years of their self-employment.

How to determine disposable income?

The pivotal point of the credit decision is the sog. available income. This is the income that is available to you each month, after deducting all fixed expenses, and must be sufficient to pay u.a. to service the interest and repayment installments with the lender. To determine this disposable income, take the profit that you make in the year. From this profit, one deducts the income tax payable. Divide the amount then remaining by 12 (months) and you have your monthly income. However, further amounts will be deducted from this:

  • Contributions for health insurance (the amount of which must be proven)
  • Contributions to pension plans (at least 20 percent of profit after taxes and usually at least 500 euros per month)

The amount then remaining is roughly comparable to the net income of an employee or civil servant.

Point of contention Depreciation

While service providers usually do not have large fixed assets (machinery, vehicles, etc.).), the situation is quite different for craftsmen, for example. This asset is depreciated in the profit statement or balance sheet. These write-offs thus lower the profit, but are ultimately only theoretical costs.

Banks handle these write-offs differently when calculating income. Some banks add all or part of depreciation back to profit in a cash flow analysis; others actually apply only profit after depreciation. After all, entrepreneurs would have to build reserves to replace fixed assets once they are depreciated. However, this lags when machines o.a. continue to be used as soon as they have been written off or replacements are financed by means of loans anyway. Here you may have to. Work on persuasion.

What to do in case of reported losses in the past years?

If you as a self-employed person have shown losses in the past years, it's getting tight. Unless any special effects are responsible for this, any bank will "zero out" your income. And this usually makes it impossible to obtain a loan. If, on the other hand, there is only one year with a negative result in between, one must have a logical and comprehensible explanation ready for this as well.

Do corona aids count as income from a banking perspective?!

In the case of the so-called. Corona aids it depends on the "overall view. After all, the subsidies paid are meant to compensate for corona-related revenue losses. In this respect, the Corona aid is recorded normally in the income and therefore increases the profit or. minimize the loss. Those who have received Corona aid, however, must be prepared for tough talks with the banks. There are said to be banks and bankers who question the entire business model of a company in this case.

What proof of income must be brought?

Proof of income is provided by tax documents such as tax assessment notices, tax returns and related balance sheets or. Profit statements, lists of totals and balances ("SuSa"). Important: Banks generally do not accept self-prepared tax returns, but require that they have been prepared by a tax advisor. This is especially true if the last tax assessment for the calendar year before last is available, because then banks usually want to see figures certified by the tax advisor.

Tip: talk to your tax advisor!

Before you start looking for real estate financing, you should discuss your current income situation in detail with your tax advisor. Based on his experience, this person knows what numbers the banks are calculating and can give you tips on how to best present your numbers. Also, keep in mind that it doesn't make a very good impression on banks if you can't give good answers to questions about your income situation. You don't necessarily have to become a specialist in reading balances, but banks rightly assume a certain basic knowledge.

What we can do for you!

Our commercial customer specialists will review and analyze your records. Colleagues know what is particularly important to which bank and can thus compile and present your figures and documents appropriately. We take over the discussions with the banks for you and answer their queries. This will save you a lot of running around and many conversations with "the bankers". You take care of your business and we'll take care of your financing.

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