Write A Declining-income Letter For A P&L — The Quick Read: A declining-income letter is a written explanation, usually backed by a CPA or tax preparer, that tells an underwriter why a platform seller’s profit-and-loss statement dropped and whether the drop has already stopped. It needs a cause, a stability statement, and supporting documents — not a paragraph of reassurance with nothing behind it. For platform sellers specifically, the letter also has to untangle gross marketplace payouts from actual net profit, since those two numbers rarely match on paper.
Platform sellers — Amazon, Etsy, eBay, Shopify, Poshmark, Depop, and similar marketplace businesses — run into this problem more than almost any other self-employed borrower type. Their revenue swings a lot. Algorithm changes, ad-cost spikes, inventory timing, and seasonal buying patterns all play a role. A P&L loan uses a CPA-prepared profit and loss statement instead of traditional personal-income documents. So when that P&L shows a downward trend, the letter of explanation becomes the key document. It decides whether the deal moves forward at the lower number, the higher number, or not at all.
Key Takeaways
- A declining-income letter must name the cause of the decline and state whether it has stopped or is still moving downward.
- For self-employed and platform-seller borrowers, a CPA or credentialed preparer usually needs to sign off — a borrower’s own narrative rarely carries the same weight.
- There’s no single industry-wide cutoff percentage that kills a file, though a decline over roughly 20% tends to draw extra scrutiny across the market.
- 1099-K gross payment volume is not the same number as net qualifying income, and conflating the two undermines the letter’s credibility.
- P&L programs commonly apply to primary residences and second homes; a rental property purchase typically runs through a different underwriting lane entirely.
Why Platform Sellers End Up Needing This Letter
Marketplace sellers often report a much lower number to the IRS than they actually collect. That’s because legitimate business deductions — inventory, ad spend, platform fees, shipping — reduce taxable income without reducing real cash flow. That gap is exactly why P&L loans exist. They let an underwriter look at business performance instead of a tax return shaped by deductions.
The tax-reporting side of platform selling has also shifted. Under current rules restored by the One Big Beautiful Bill Act, payment facilitators issue a 1099-K for any seller collecting more than $20,000 in business payments across more than 200 transactions in a year, according to Fusion CPA and confirmed in a Fidelity explainer on the form. That 1099-K figure reports gross payment volume, not profit. A seller who collected $200,000 in gross Amazon payments might show a much smaller net figure once cost of goods, fees, and shipping come out. When a P&L shows a decline year over year, the underwriter needs to know whether that decline reflects a real drop in business, or whether it reflects heavier reinvestment, inventory buildup, or a one-time cost that ate into margin.
Key Terms Defined
- P&L loan: A non-QM mortgage that qualifies a self-employed borrower using a profit and loss statement instead of traditional personal-income documentation, pay stubs, or W-2s.
- Declining-income letter: A written explanation, typically paired with supporting documents, describing why reported income dropped and whether the trend has reversed.
- Expense ratio: A fixed or accountant-supplied percentage applied to gross deposits or revenue to estimate the true qualifying income left after business costs.
- 1099-K: An IRS information return showing gross payment volume processed through a platform, which is not the same figure as taxable net profit.
- DSCR loan: A business-purpose loan for rental property that is reviewed on the property’s own rent-to-payment coverage rather than the borrower’s personal income.
The Mechanics, Step By Step
Step one: the underwriter spots the trend. This usually happens by comparing the current CPA-prepared P&L against the most recent filed tax year, or comparing two P&L periods against each other. A commonly cited rule of thumb in the industry treats declines under roughly 10% as low-risk, sometimes resolvable with a brief letter alone.
Step two: the underwriter asks two questions. Has the decline stopped or reversed, and what caused it in the first place? A seller who can show the most recent few months trending back up is in a very different position than one whose numbers are still sliding. The reason behind the decline matters just as much — a one-time inventory write-down reads differently than a steady loss of sales velocity.
Step three: the right party writes the letter. For a business-driven decline, a CPA or credentialed tax preparer typically writes or co-signs the explanation, addressing whether income is stable, increasing, or declining, and giving specific context for any drop. A borrower-authored narrative can supplement this but rarely replaces it, since the preparer’s independent standing is what gives the letter weight in the first place.
Step four: documentation backs up the words. The letter alone rarely carries a file. It typically travels alongside the CPA-prepared 12-month P&L (with an ending date close to the application date), business bank statements covering a recent window, and sometimes a short business narrative describing operations. This documentation set is what turns the letter from an opinion into something an underwriter can verify.
Step five: the underwriter sets the coverage figure. Where a trend analysis is used as backstop logic, common industry practice looks at both the recent average and the most recent period, then leans toward the lower, more conservative figure when the trend is downward. That’s the number that ultimately drives how much loan the file supports — which is exactly why the letter’s job is to convince the underwriter the lower figure isn’t the future.
For anyone weighing whether a P&L loan or a DSCR loan is the right lane, Lendmire’s complete DSCR loans guide breaks down how property-income qualification works separately from personal-income underwriting.
What The Letter Actually Needs To Say
A strong letter isn’t a defense — it’s a documented explanation. Four elements tend to separate a letter that works from one that gets bounced back for more information:
1. The specific cause. Was it a platform policy change, a temporary account suspension, heavier ad spend, an inventory buildup, a supply disruption, or a genuine slowdown in sales? Vague language (“business was slower this year”) rarely satisfies an underwriter looking for something concrete.
2. Whether it’s temporary or ongoing. This single point often decides the outcome more than any other sentence in the letter. A decline tied to a resolved, one-time event reads very differently than one still trending downward at the time of application.
3. Business-expense context, where relevant. For a platform seller who reinvested in inventory, equipment, or advertising during a slower revenue year, a CPA letter that separates “spent on growth” from “lost the business” can reframe what looks like decline as a deliberate operating choice.
4. Forward stability. Recent months of marketplace payout reports or bank deposits showing the trend has already leveled off or reversed carry more weight than a promise that things will improve.
A letter built around these four points, backed by an ending P&L date within roughly 45 days of application and supporting bank statements, gives an underwriter something to act on. A letter that just asserts the business is “fine” without addressing cause, duration, or documentation tends to get sent back — or the file gets qualified at the lower, more conservative number regardless.
Lendmire’s related coverage on how a CPA letter sets net qualifying income goes deeper into how the CPA’s specific language shapes the number an underwriter uses.
Where It Can Go Sideways
There’s no single cutoff percentage that automatically kills a file across the market. FHA’s published standard flags self-employed income declines over 20% as a trigger for manual underwriting, per HUD Mortgagee Letter 2022-09 — a rule specific to FHA, not to non-QM P&L programs, but one that non-QM overlays often echo informally as a risk marker. Below that threshold, a well-documented letter often resolves the concern outright. Above it, expect more scrutiny and possibly a lower qualifying figure regardless of how the letter reads.
A few things routinely undermine an otherwise reasonable letter:
- Treating 1099-K gross volume as income. A seller who cites total marketplace payments as if that were profit loses credibility fast, since that figure doesn’t account for cost of goods, fees, refunds, or shipping.
- A generic, templated letter. Boilerplate language that doesn’t name a specific cause or timeframe tends to read as filler rather than explanation.
- A borrower-written letter standing in for a CPA letter. Since the whole point of a P&L program is third-party verification, a self-authored explanation carries less weight than one from the preparer who filed the underlying returns.
- Confusing structural decline with a one-off. A platform account suspension that got resolved, a temporary supply disruption, or a heavy reinvestment year are explainable. A steady, multi-period drop in sales velocity is a different story, and no letter fully papers over that pattern.
Who This Fits — And Who It Doesn’t
A declining-income letter earns its keep in a specific case: a platform seller whose most recent P&L dipped for a documented, non-recurring reason — a supply hiccup, a reinvestment year, a temporary account issue — and whose recent months already show the trend turning back up. In that scenario, a well-built letter, paired with a CPA sign-off and current bank statements, can be the difference between qualifying at the older, higher figure and getting stuck at the lower one.
It fits less well when the decline is structural. If sales velocity has genuinely fallen off over multiple periods with no clear cause and no sign of reversal, no amount of careful letter-writing changes the underlying number the underwriter is going to use. In that case, the more honest move is often qualifying at the lower figure from the start, or looking at a different documentation path altogether.
It’s also worth knowing that P&L programs generally apply to primary residences and second homes — not investment property purchases. An investor buying a rental doesn’t need to write a declining-income letter at all in most cases. That’s because a DSCR loan is reviewed on what the property earns in rent, not what the borrower’s platform business reported that year. Platform sellers building a rental portfolio alongside their e-commerce business often miss this distinction: the P&L trouble on the personal-income file has no bearing on a separate DSCR application for a rental property.
The Bank-Statement Alternative, When The P&L Trend Won’t Cooperate
Some platform sellers with a genuinely rough P&L year skip the letter-writing exercise altogether. Instead, they qualify on bank deposits. Across the wholesale programs Lendmire works with, that path runs on 12 or 24 consecutive months of personal or business bank statements. Eligible deposits are divided by the statement months after an expense ratio is applied — 20% for a service business with no employees, 40% for one with one to five employees, 50% for a product business or one with six or more employees, or an accountant-supplied ratio instead of the fixed bands. Transfers from the seller’s own business account into a personal account count in full. That matters for a lot of platform sellers who move marketplace payouts that way.
Credit floors on that portfolio program sit at 660, with debt-to-income allowed up to 50% and reserve requirements running 3 months on smaller balances, 6 months on mid-size balances, and 9 months above that — plus additional reserve months per financed property for investors carrying more than one. Loan sizes on this program run from $300,000 up through a $6,000,000 portfolio ceiling, and a separate bank portfolio program carries twelve-month-statement files as high as $30,000,000 on its own ladder — 65% leverage to $5,000,000, 60% to $10,000,000, and 55% up to $30,000,000, with anything above $4,000,000 reviewed case by case before submission. Leverage on a primary residence steps down as size increases — as high as 90% at the lowest tier, narrowing toward the mid-60s and below at the top of the ladder — and second-home and investment-property leverage runs roughly five points lower at every size band. Cash-out is unlimited at or below 60% loan-to-value on the portfolio program, with a $1,500,000 cap on cash proceeds above that threshold. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Sometimes a platform seller’s P&L is stuck below what their real cash flow actually supports. In that case, skipping the declining-income letter entirely and qualifying on deposits can be the more direct route — provided the bank statements themselves tell a cleaner story than the tax-reported P&L does. This path also sidesteps the debate over what caused the decline, since qualifying income comes from actual deposit activity rather than a narrative about why the P&L dipped. Anyone considering how proceeds from an existing rental might supplement reserves or a down payment on a next purchase can also look at how delayed financing works against a P&L file for a related option.
DSCR loans, by contrast, don’t ask any of these questions in the first place. A DSCR file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. There’s no P&L, no 1099-K reconciliation, and no declining-income letter required, because the borrower’s personal income trend simply isn’t part of the math.
This article is for general information only. It isn’t legal or tax advice. Platform sellers dealing with a declining P&L, a 1099-K discrepancy, or a business-structure question should talk with a qualified CPA, tax attorney, or mortgage professional. They should discuss their specific situation before making a decision.
Frequently Asked Questions
Do I need a CPA to write my declining-income letter, or can I write it myself?
Most P&L programs want the explanation tied to a CPA or credentialed tax preparer, especially when the decline is business-driven. A borrower can add personal context, but the preparer’s independent sign-off is usually what gives the letter enough weight to move the file forward.
What if my platform account got suspended and that caused the drop?
Document it. A resolved, one-time event like a temporary account suspension or a supply disruption tends to read as explainable, provided the letter names the dates, the cause, and shows the account or sales activity has since normalized.
Is there a specific percentage decline that automatically gets me denied?
No single number applies across every program. FHA’s published guidance flags self-employed declines over 20% for extra manual underwriting, and non-QM overlays often use a similar figure informally, but a smaller decline with a strong letter can pass without much friction.
Does my 1099-K number matter for the letter?
It can confuse things if used incorrectly. A 1099-K reports gross payment volume, not net profit, so citing it as your income figure in the letter usually weakens the case rather than strengthening it.
Can I use a P&L loan to buy a rental property?
Typically not — most P&L programs apply to primary residences and second homes. Rental property purchases usually run through a DSCR loan instead, which is reviewed on the property’s rental income rather than the borrower’s business P&L.
What happens if the underwriter doesn’t accept my letter?
The file may get qualified at a lower income figure, or an underwriter may ask for additional documentation, such as more recent bank statements showing the trend has reversed. It rarely means an automatic decline outright.
If you’re a platform seller or self-employed borrower trying to figure out whether a declining P&L, a bank-statement path, or a DSCR loan on a rental fits your situation, Lendmire can help compare options based on income documentation, credit profile, and property type. Reach out through Lendmire’s team to talk through the specifics before submitting a file.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
Self-employed borrowers can compare both super jumbo programs on Lendmire’s self-employed mortgages page.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 40 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 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. Fusion CPA — 1099-K Reporting
2. Fidelity — Understanding Form 1099-K
3. HUD Mortgagee Letter 2022-09
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.
