Expense Factor Works On A Bank Statement Loan By Business Type — The Quick Read: Lenders assign a flat percentage of your business bank deposits to “expenses” before counting the rest as income. A single-person service business often gets a 20% expense factor. A business with six or more employees, or any product-based business, usually lands at 50%. A CPA can certify a different ratio in writing, and a profit-and-loss method can go as high as 80% in some files. The business type and headcount decide which door you walk through.
This isn’t a minor line item. Two business owners with identical monthly deposits can qualify for very different loan amounts purely because of how their industry and staffing get categorized. Getting the category wrong, or missing the CPA-letter option when it would help, is one of the most common ways a self-employed borrower leaves qualifying income on the table.
What Is An Expense Factor, In Plain Terms?
The expense factor is the percentage of your business’s gross bank deposits a lender assumes went to running the business, not into your pocket. Whatever’s left after that haircut becomes your qualifying income for the mortgage.
The math is simple: total eligible deposits over the statement period, divided by the number of months, times the leftover percentage after the expense factor. If a lender applies a 50% factor, half the average monthly deposit counts as income. If the factor drops to 20%, four-fifths of it counts. Same deposits, very different coverage figure.
This is a Non-QM underwriting convention, not a federal rule. Each program sets its own methodology inside that boundary. That’s why the ratio you get depends heavily on which lender in a wholesale network reviews your file.
Key Terms Defined
Expense factor — the fixed percentage of gross business bank deposits treated as operating costs before the remainder counts as qualifying income.
Eligible deposits — the recurring, business-related deposits a lender averages over the statement period; one-time transfers, loan proceeds, and unusual deposits are typically excluded or flagged for explanation.
CPA letter (or accountant letter) — a written certification from a CPA, enrolled agent, or qualifying tax preparer stating the business’s actual expense ratio, used to override the flat default when actual costs run lower.
Profit-and-loss (P&L) method — an alternative documentation path where a CPA-prepared profit-and-loss statement supports income directly, generally capped at a higher expense assumption than the flat tiers.
Ownership percentage — the share of the business the borrower owns; qualifying income from business deposits is typically prorated by that share, and most programs require at least a minimum ownership stake to use business statements at all.
How Does Business Type Change The Ratio?
Business type sets the starting tier, and headcount moves you within it. Across the wholesale bank statement guidelines used most often in these files, the fixed ratios run in bands: 20% for a service business with no employees, 40% for a service business with one to five employees, and 50% for any business with six or more employees or any product-based business regardless of staffing.
Read that carefully. It’s not just “restaurants get penalized.” A solo consultant, freelance designer, or single-owner property management operation with no staff sits at the most favorable 20% tier. Add a handful of employees and the same service business moves to 40%. Hit six employees, or sell a physical product at any size, and the ratio jumps to 50%. Two businesses in the same NAICS code can land on different tiers purely because one has three employees and the other has eight.
The logic underneath these tiers is straightforward: goods-based businesses carry inventory, cost of goods, and fulfillment overhead that a pure labor-and-advice service business doesn’t. A larger headcount means more payroll flowing through the same bank account, which the lender assumes represents real operating cost rather than owner profit.
Market surveys of the broader bank statement space describe similar patterns industry-wide — a default around 50%, with some programs pushing cash-heavy operations like restaurants toward 70%, and low-overhead solo service providers sometimes qualifying as low as 20%. Those figures reflect market-wide reporting, not a single lender’s guideline, and the fixed tiers described above are the ones used across the wholesale programs referenced here.
The CPA Letter Override — When It’s Worth Pursuing
If your actual expenses run meaningfully below the fixed-tier ratio, you have an option. A signed letter from a CPA, enrolled agent, or qualifying tax preparer can replace the flat percentage with a lower, custom one. The borrower cannot self-certify this number. It has to come from a licensed third party who has reviewed the business’s records and filed its most recent tax return. The Consumer Financial Protection Bureau’s Ability-to-Repay standard requires lenders to find out, consider, and document a borrower’s income, assets, employment, credit history, and expenses. But it doesn’t dictate a specific expense-ratio formula for bank statement programs, according to the CFPB’s Ability-to-Repay guidance.
A real securitization exception report illustrates why lenders take this seriously. In one file, guidelines required a fixed 50% expense ratio for a service business with one to five employees unless a CPA letter said otherwise — and the loan got flagged because the file used 40% without that letter on file, pushing the borrower over the program’s maximum debt-to-income threshold once corrected, per the EFMT Depositor LLC ABS-15G exception filing. That’s not a hypothetical risk. It’s documented in an actual loan-level audit.
The letter itself is narrow in scope. It needs to state the certified expense ratio for the exact period the bank statements cover, confirm the preparer reviewed the business’s financials, and confirm they’ve filed or completed the borrower’s most recent business return. There’s a floor on how low that number can go — a business with genuinely minimal overhead still can’t be certified below a program’s stated minimum, and profit-and-loss-based paths run on a separate, higher cap rather than the same floor as a CPA letter.
The businesses that gain the most from pursuing this route are low-overhead service operations — consulting, brokerage, property management, professional practices — where actual costs sit well under the fixed 40% or 50% tier they’d otherwise be assigned. A goods-heavy or high-headcount operation is less likely to move the needle much, since its real costs are often closer to the default anyway.
If you’re weighing this decision, check Lendmire’s complete DSCR loans guide. It covers how income documentation choices tie into broader investor-loan strategy. For a closer look at higher loan sizes, see setting the expense factor on a super jumbo file. It walks through the mechanics specifically for those bigger files.
Why Does This Matter If I’m Financing A Rental Property?
Here’s the distinction investors miss most often: DSCR loans qualify based on whether the subject property’s rent covers its own payment. They don’t qualify based on the borrower’s personal or business income. So the expense factor conversation usually isn’t about the rental loan itself. It’s about a separate piece of financing in the portfolio, like a primary residence purchase or a bridge loan, where the borrower’s self-employed business income is the qualifying source.
Where this does affect rental financing is commingling. If rental income or property-management fees run through the same business bank account as everything else, that money can get swept into the same expense-factor haircut as ordinary business deposits. Keep landlord income in a dedicated account, separate from the operating business. This avoids that unnecessary discount and keeps the two documentation paths clean.
Two Business Owners, Same Deposits, Different Outcomes
Picture two business owners each averaging the same monthly deposit volume into their business accounts. One runs a solo consulting practice with no employees. The other runs a small retail operation with eight employees.
Under the fixed-tier structure, the consultant’s deposits get the 20% no-employee service factor applied, since real overhead in that kind of practice tends to run thin. The retail owner’s deposits get the 50% factor that applies to any product business, regardless of the modest headcount difference. Same gross deposits, but the consultant’s qualifying income comes out meaningfully higher — simply because of business type and staffing, not revenue.
Now add a CPA letter to the retail owner’s file. If the accountant can document actual expenses running below the 50% assumption — say, because inventory turns fast and margins are strong — that certified number replaces the fixed tier and lifts qualifying income accordingly. Without the letter, the retail owner is stuck at the higher default even if their real cost structure doesn’t justify it.
This is exactly the kind of gap a broker working across multiple wholesale programs is positioned to catch. Files that come in through a single retail lender often get whatever tier that lender defaults to, with no prompt to pursue a CPA letter or check whether a different program’s headcount thresholds land more favorably. Across a wholesale network, the same deposit history can be run under a couple of different expense-tier structures before submission, and the CPA-letter option gets flagged early — before a loan officer submits a file at 50% that could have cleared at 20% with one signed letter.
What About Personal Bank Statements?
Personal account deposits are typically counted directly, without an expense-factor deduction, since a personal account isn’t assumed to carry business operating costs the way a business account does. That’s the general distinction driving most programs. Some personal bank statement programs apply their own flat ratio regardless of business type, so this varies by lender — another reason it pays to compare more than one guideline set before choosing which statement type to submit.
Business statement programs usually require the borrower to own at least a minimum stake in the business. This lets them qualify this way at all. When the borrower moves money from their own business into a personal account, that transfer typically counts in full toward qualifying income. That’s because the money has already cleared the business-side calculation once.
Where This Fits Into Larger Bank Statement Files
For high-net-worth borrowers whose traditional personal-income documentation understate true cash flow — founders, physicians, attorneys, entertainers, established investors — the expense factor is one input in a much larger sizing conversation. Across the wholesale bank statement programs referenced here, files run from $300,000 up to $30,000,000 through two separate tracks: a portfolio Non-QM program carrying to $6,000,000, and a bank portfolio program that carries twelve-month-statement files to $30,000,000 on its own ladder — 65% loan-to-value to $5,000,000, 60% to $10,000,000, and 55% at the top of the range, with interest-only capped at 60% or the band’s ceiling, whichever is lower.
Leverage on a primary residence steps down as size climbs: 90% up to $1,000,000, 85% to $2,000,000, 80% to $3,000,000, and 75% at the strongest credit tier to $4,000,000, before moving to case-by-case review through $6,000,000 and then onto the bank program’s own ladder above that. Second homes and investment properties generally run about five points lower at every size band. On investment property specifically, cash-out is scoped to a 75% ceiling for standard rentals and a lower 70% ceiling where short-term-rental collateral is involved.
Credit floors sit at 660 on the portfolio program and 700 above the super-jumbo size threshold, with debt-to-income allowed up to 50% and reserves scaling from three months on smaller loans to nine months on larger ones. Every file above $4,000,000 is reviewed case by case before it’s even submitted — that’s not a formality, it’s how these larger files actually move through underwriting.
For a borrower with genuine deposit history but a business type that lands in a less favorable expense tier, the asset-based or profit-and-loss paths sometimes make more sense than pushing hard on the bank statement route. A super jumbo bank statement loan applies-the-CPA breakdown covers how that decision gets made in practice at these loan sizes.
Frequently Asked Questions
Does my expense factor change if I switch from 12 to 24 months of statements?
Not directly — the fixed tier tied to your business type and headcount stays the same regardless of the lookback period. What changes is the deposit average itself, since a longer history smooths out seasonal swings and can shift qualifying income up or down depending on how the business trended over that stretch.
Can I use a CPA letter and the fixed tier together on different loans?
Yes. The CPA letter is an override option per file, not a permanent designation. A borrower could submit one loan under the fixed 40% tier and pursue a certified lower ratio on a later file if their accountant is willing to document it, subject to that program’s requirements at the time.
What if my business has both product and service revenue?
Lenders typically classify the business by its primary activity, and a hybrid operation with meaningful product sales usually gets treated under the higher product-business tier rather than the lower service tiers, absent a CPA letter documenting a different actual ratio.
Does the expense factor apply to a DSCR rental loan?
Generally no. DSCR loans qualify primarily on the subject property’s rental income covering its own payment, subject to lender guidelines — not on the borrower’s personal or business bank deposits. The expense factor question usually shows up on a separate piece of financing, like a primary residence, where business income is the qualifying source. Lendmire’s DSCR loan requirements guide covers how that qualification works in more detail.
Is there a maximum ownership share required to use business statements?
Most programs set a minimum ownership threshold rather than a maximum — a borrower generally needs to own a meaningful stake in the business, often at least a quarter or more depending on the lender, to qualify using that entity’s bank statements at all.
Are you weighing bank statement financing against a DSCR loan for a rental purchase? Or trying to figure out which documentation path fits your business type? Lendmire can help you compare options across select wholesale lenders based on your income structure, credit profile, and property goals.
Self-employed borrowers can compare both super jumbo programs on Lendmire’s self-employed mortgages page.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 40 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
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References
1. CFPB — What is the Ability-to-Repay rule
2. SEC EDGAR — EFMT Depositor LLC ABS-15G Exhibit 99-38
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.
