The Quick Read: A franchise owner builds qualifying income from 12 or 24 months of bank deposits through a bank statement loan, a non-QM program for self-employed borrowers whose traditional personal-income documentation understates cash flow. For a rental purchase, a DSCR loan skips your franchise income and tests the property’s rent against its payment instead, subject to lender guidelines.
- Gross deposits are not income. Lenders strip transfers and loan proceeds, then apply an expense factor to business accounts.
- Bank statement loans test your income and debts. DSCR loans test the property.
- On most DSCR purchases, leverage lands at 75%-80% LTV on an investment property, subject to lender guidelines.
- Multi-unit owners must show transfers between location accounts are not income.
- Many franchise owners use a bank statement loan for the home they live in and DSCR for rentals.
Franchise owners have a particular problem. The business throws off real cash, but the tax return shows modest profit. Royalties, payroll, rent, advertising and depreciation all reduce taxable income, and they should. A conventional lender looks at that bottom line and sees a borrower who earns far less than the deposits suggest.
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As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
This article walks through how deposit-based underwriting treats a franchise, how DSCR changes the picture for rentals, and where the general rules bend.
What “a Mortgage on Business Deposits” Actually Means
Non-QM stands for “non-qualified mortgage,” a category of loans that use documentation methods outside the standard agency box. Instead of traditional personal-income documentation, W-2s or pay stubs, the lender builds income from 12 or 24 months of personal or business bank statements.
Docsumo describes the process well: the lender removes deposits that are not income, applies an expense factor to business accounts, and averages what remains over the months covered. Notice that this is full underwriting, just with a different income calculation. Nobody is skipping the review.
One scope note. This article is about a home or rental mortgage for you, the owner. It is not about commercial financing for a franchise location’s real estate. That is a different product with a different underwriter.
Why Franchise Income Looks Low on Paper
Franchise owners carry cost lines that most small businesses do not. A CPA firm’s franchise accounting overview notes that royalties are an ordinary deductible expense, typically 4-8% of gross sales. It also notes that the initial franchise fee is amortized over 15 years, so part of that cost keeps reducing taxable income long after the cash left the account.
Gross revenue is not owner income either. A franchise-industry explainer points out that a location can post strong sales and still leave limited profit after payroll, rent, advertising and royalties. That is the conceptual reason lenders apply an expense factor. They are estimating what is left for you.
So two true things coexist. Your deposits are large. Your tax return is small. A bank statement loan tries to land somewhere sensible between them.
How Underwriting Turns Deposits Into Income
Here is the sequence, step by step.
1. Pick the account type. Most programs offer a business-statement option and a personal-statement option. The Docsumo walkthrough explains that personal statements can skip the expense factor when business records show the deposits come from your own business. Business statements get the factor applied.
2. Strip ineligible deposits. Transfers from savings, loan proceeds such as equipment financing, and unexplained deposits come out. For a franchise owner, that list grows. Franchisor-funded incentives, SBA or equipment loan draws, and transfers between your location accounts can all look like revenue. None of them are income.
3. Apply the expense factor and your ownership share. The formula is eligible deposits, times one minus the expense factor, times your ownership percentage, divided by the months covered. Market surveys commonly cite a 50% default factor for business statements. The factor varies by lender, industry and account type. A CPA or tax preparer can sometimes document a lower one, though the lender decides what formats it accepts and sets the factor from the business type and the P&L. You do not choose your own number.
4. Check the trend. Declining deposits usually draw a letter of explanation. In some cases the lender uses the most recent 12 months rather than 24. Rising deposits help. Falling ones hurt, and seasonal swings need context.
5. Run the debt side. On a bank statement loan, the derived income is compared with your monthly debts. DTI, or debt-to-income ratio, is the share of your income that goes to debt payments. This step matters later, because it is where DSCR differs.
6. Verify the business exists. Expect ownership proof, a business license or EIN, and often a CPA or tax-preparer confirmation that you run the business.
7. Document assets and reserves separately. Funds to close and reserves are verified on their own. Reserves are cash left over after closing, typically counted in months of the full housing payment.
A worked picture helps. Say a single-unit owner shows steady eligible deposits across 24 months, and the lender applies a 50% factor. Qualifying income is roughly half of eligible deposits. If a CPA-documented factor comes in lower, income rises. If you own only part of the location, income drops by the share you do not own. A 60% owner sees a 40% reduction, per the Docsumo example.
Which Deposits Count and Which Don’t
| Deposit type | Usually counts? |
|---|---|
| Customer sales and POS settlements | Yes |
| Delivery or aggregator payouts for your sales | Yes, if documented |
| Transfers between your own location accounts | No |
| SBA or equipment loan proceeds | No |
| Owner injections from savings | No |
| Franchisor incentives or co-op funds | Often no, ask the lender |
| Unexplained cash deposits | No |
The pattern is simple. If the money came from customers buying your product, it counts. If it moved from one of your pockets to another, or from a lender, it does not.
Entity Structure and Multi-Unit Owners
Multi-unit franchisees face the hardest version of this file. Each location often has its own account and sometimes its own LLC. Transfers between them are not income, so the lender must see statements for every account feeding you. Partners sharing a location reduce your counted income by their share.
Entity type changes what your tax return shows. It does not change the deposit math. A sole proprietor, an S-corp and an LLC taxed as a partnership all get the same basic treatment: strip, factor, share, average. Where the entity matters is paperwork. The lender will want to see which entity owns which account and how much of it you own.
Here is the practical advice. Clean up before you apply. Stop sweeping money between accounts without a paper trail, keep owner draws separate from operating costs, and avoid mixing personal and business spending in one account. Commingled accounts invite the most conservative treatment a lender can apply.
New Franchisees and Uneven Deposits
Lenders commonly like to see about two years of business history. A franchise you bought eight months ago is a thinner file. Prior experience in the same industry sometimes helps, and a different documentation path may fit better. Program rules vary by lender, so this is a conversation to have early.
A new unit that is still ramping has uneven deposits. Expect questions. Seasonal businesses get the same treatment: the lender reads the whole period, and a clear explanation goes a long way.
Where DSCR Changes Everything
If you are buying or refinancing a rental, you may not need your franchise income at all. DSCR stands for debt service coverage ratio. It compares the property’s rent to its full monthly payment: principal, interest, taxes, insurance and any HOA dues, together called PITIA. A DSCR loan qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
Across the wholesale network Lendmire works with, 1.00 is where many select programs start, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Stronger ratios open better pricing and leverage. Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management, utilities and capex sit outside the calculation.
Why does this matter for a franchise owner? Because your deposits stop being the test. Statements on a DSCR file prove assets and the source of your down payment and reserves, not income. A heavy write-off history does not hurt you here.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The Federal Register’s final rule says business-purpose loans fall outside the ability-to-repay provisions, and investment-purpose loans are treated as business-purpose.
One caution for house-hackers. A rental you will live in is not automatically business-purpose. Owner-occupied small properties can be treated as consumer credit, and a compliance-trade summary says a unit you occupy is treated as business-purpose to acquire only when it has more than two units. DSCR is for investment property you will not occupy.
The Numbers on a Typical DSCR File
These are typical ranges across select lenders in the network. Every file is underwritten individually, and nothing here is a commitment to lend.
- Purchase leverage: most files land at 75%-80% LTV on an investment property, which means 20%-25% down. LTV is loan-to-value, the loan as a share of the property’s value.
- Cash-out refinance: tops out around 75% LTV on a standard rental, with about six months of seasoning, meaning the wait between buying and refinancing, commonly expected.
- Credit: a 620 floor exists in parts of the network. Most programs want around 660. A 700+ score unlocks the strongest leverage tiers.
- Loan size: up to $3,000,000 on standard programs. Smaller balances route through select lenders.
- Reserves: commonly around six months of PITIA, stepping up to about nine months above $1,500,000. They vary by lender, leverage and transaction type.
- Not offered: manufactured homes, log homes and barndominiums fall outside these DSCR programs.
A bigger down payment lowers the payment and can lift coverage. It never erases credit floors, reserve rules or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
For more on mechanics, see the complete DSCR loans guide.
Bank Statement vs. DSCR: Which Fits Your Situation
| Factor | Bank statement loan | DSCR loan |
|---|---|---|
| What is tested | Your deposit-based income | The property’s rent vs. payment |
| Franchise deposits matter? | Yes, central | Only for assets and reserves |
| Property use | Primary, second home, investment | Investment only |
| Effect on your DTI | Adds debt to your file | Assessed per property |
| Best for | Your own home | Scaling a rental portfolio |
A common pattern is a bank statement loan for the home you live in and DSCR for rentals. Because a bank statement loan adds debt to your personal ratios, each new financed property shrinks your capacity. DSCR assesses each property on its own.
Sometimes the reverse applies. A rental with thin cash flow can fail DSCR yet pass on strong deposit income. Self-employed investors usually choose whichever path puts the strong side of the file forward.
Using Business Funds for Down Payment and Reserves
You can often use business funds, but expect scrutiny. The lender wants to know that pulling cash from the business will not damage its ability to keep operating. Some lenders also discount business-account balances compared with personal ones. A business account usually works when you own the entity, though the lender will want documentation.
If you need standing liquidity beyond a single purchase, Lendmire’s piece Jumbo Cash-Out vs Jumbo HELOC as Standing Liquidity for a Business Owner covers that tradeoff.
Key Terms Defined
Bank statement loan: A non-QM mortgage that builds income from 12 or 24 months of deposits instead of traditional personal-income documentation.
Expense factor: The percentage of business deposits assumed to go to operating costs, subtracted before income is counted.
Eligible deposits: Deposits that come from real business revenue, after transfers, loan proceeds and unexplained funds are removed.
DSCR: Rent divided by the full monthly payment on the property.
PITIA: Principal, interest, taxes, insurance and association dues.
Seasoning: The waiting period between buying a property and refinancing it.
Reserves: Liquid cash left after closing, counted in months of payment.
Why the Regulatory Frame Is Flexible
You might wonder why deposit-based income is allowed at all. The CFPB’s ability-to-repay guide says a lender must consider eight underwriting factors on a consumer mortgage, including the income or assets it relies on and your credit history. The rule sets minimums but does not dictate a single underwriting model. That flexibility is why bank statement methods exist, and it is also why they are not “no-doc.” They are full underwriting with a different income calculation.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Common Mistakes
- Treating gross deposits as income. The lender will not.
- Moving money between location accounts without records. Those transfers get stripped and can muddy the whole file.
- Assuming you can set your own expense ratio. The lender sets it.
- Expecting DSCR to look at your franchise earnings. It generally does not.
- Applying right after a big entity change or a large new debt. Stability matters.
- Buying an owner-occupied small rental and calling it an investment loan. Occupancy changes the category.
If a file is declined, the fix is usually one of three things: cleaner statements, a longer or more stable history, or a switch to the other path. A strong-deposit, weak-rent file may suit a bank statement loan. A thin-income, strong-rent file may suit DSCR. Related reading: Lendmire’s article Can a Restaurant or Salon Owner Get a HELOC on Business Deposits?.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Call 828-256-2183 or request a quote through the site.
Frequently Asked Questions
Can a franchise owner really qualify using business bank statements?
Yes, under a bank statement program, subject to lender guidelines. The lender builds income from 12 or 24 months of deposits, removes non-income items, applies an expense factor, and averages the result. It is full underwriting, just with a different income calculation.
Do I need my franchise income to buy a rental property?
Usually not. A DSCR loan is reviewed primarily on property-level rental income covering the payment. Your statements mainly prove assets and the source of your down payment and reserves.
What happens if I own a multi-unit franchise through several LLCs?
The lender reviews statements for every account that feeds you. Transfers between locations are excluded, and your ownership share in each entity sets how much income counts. Organized records matter more here than anywhere else.
Can I use business account funds for my down payment?
Often, yes, with extra scrutiny. The lender wants to see that withdrawing the money will not impair the business. Some lenders discount business balances compared with personal accounts, so ask before you rely on them.
Is a bank statement loan the same as a no-doc loan?
No. It is reviewed on documented income under the applicable program, subject to lender guidelines. Expect statements, business verification and a full review of credit, assets and debts.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Docsumo, bank statement income verification
2. SDO CPA, Franchise Accounting
3. Confie, How Franchise Owners Get Paid
4. Federal Register ATR/QM final rule
5. Compliance Alliance, Regulation Z and Investment Properties
6. CFPB ATR/QM Small Entity Compliance Guide
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Compare DSCR Loan Quotes From Three Lenders · How to Recycle Equity Into the Next Rental With DSCR Cash-Outs · How to Prepare a Rental Property for a DSCR Appraisal
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.