You and the contractor down the street both deposited the same amount last year. You are a consultant working alone. He has a crew of eight.
You will be handed roughly five times the qualifying income he will. Same deposits. Same credit. Same down payment.
That is not a judgment about either of you. It is a table, and it is the single most important thing in self-employed lending that nobody explains before you apply.
The table
From CMG Financial's Non-QM Sharp Series guidelines (NMLS #1820, revised 09/21/2026), the fixed expense ratio applied to business bank statement deposits:
Service business, meaning a business that offers services. Examples given: consulting, accounting, legal, therapy, counseling, financial planning, insurance, information technology.
- 0 employees: 15% expense factor
- 1 to 5 employees: 30% expense factor
- More than 5 employees: 50% expense factor
Product business, meaning a business that sells goods. Examples given: retail, food services, restaurant, manufacturing, contracting, construction.
- 0 employees: 25% expense factor
- 1 to 5 employees: 50% expense factor
- More than 5 employees: 85% expense factor
The expense factor is what gets subtracted. So a 15% factor leaves you 85% of deposits. An 85% factor leaves you 15%.
The guidelines give the arithmetic directly: a borrower with $25,000 in monthly average deposits multiplied by a 50% expense factor produces $12,500 in qualifying income.
What the spread actually means
Run the same $25,000 in monthly deposits across the table:
- Solo consultant, 15% factor: $21,250 in qualifying income
- Consultancy with three staff, 30% factor: $17,500
- Retail shop, no employees, 25% factor: $18,750
- Restaurant with three staff, 50% factor: $12,500
- Construction company with ten on the crew, 85% factor: $3,750
Top to bottom, the same deposits produce qualifying income that differs by more than five and a half times.
That is why the classification conversation is the whole conversation for a self-employed borrower, and why being sorted into the wrong column by someone in a hurry is expensive.
The two rules attached to the table
Reasonableness. The guidelines state the expense ratio should be reasonable for the profession. So the table is a starting point, not an unchallengeable output. A business whose economics genuinely do not look like its category is a conversation, though it is a conversation you should expect to document rather than assert.
Ownership. Qualifying income should be multiplied by your documented business ownership percentage, and minimum ownership is 25%. Own 40% of the firm and you qualify on 40% of the calculated income, on top of the expense factor.
A minority partner in a service firm with employees takes both haircuts. Thirty percent off for the factor, then sixty percent off for ownership. That is the file where the personal bank statement route frequently wins, because your draws are what actually reach you.
Three ways out from under the table
The fixed table is Option 1 of three. Nobody should choose it without seeing the other two.
Option 2: third-party prepared profit and loss. Qualifying income is the lower of the validated P&L net income or the monthly income you disclosed on the initial signed 1003. The P&L is validated against your business bank statements: gross revenue on the P&L must be within plus or minus 10% of total qualified deposits.
This is the route for a business whose real expenses are far lower than the table assumes. A contractor whose deposits are mostly pass-through, or a product business with unusually lean operations, can be crushed by an 85% factor and do well on a real P&L.
Requirements are strict. The P&L must be prepared by a tax professional, defined as a CPA, tax attorney, enrolled agent, CTEC member or paid tax professional with a PTIN. It must cover the same months as the statements, be signed by you and the preparer, and the preparer must attest that they audited the financials or reviewed your working papers, that they are not related to you or associated with your business, and that they filed your most recent two years of business tax returns. A borrower prepared P&L is not permitted under any circumstances.
Option 3: third-party prepared expense ratio. A tax professional prepares and signs a statement specifying business expense as a percentage of gross annual sales, and net income is calculated as eligible business deposits multiplied by 100% minus that ratio. Same attestation requirements. One extra restriction: self-employed borrowers who have filed their own business tax returns are ineligible for this option.
Both have a floor. A business qualifying on a P&L showing less than a 15% expense ratio is limited to 15%, and the third-party prepared expense ratio is floored at 15% as well. You cannot get to zero expenses no matter how the documents read.
Counting employees
The band boundaries are 0, 1 to 5, and more than 5. Moving from five to six employees moves a service business from 30% to 50%, and a product business from 50% to 85%.
That is a cliff, and it is worth knowing where you sit relative to it before you apply. Contractors and 1099 workers are named alongside employees in the business narrative requirements, so how you characterize your workforce matters and should be consistent across the file.
What else they will want
The bank statement route comes with a business narrative covering your business profile, location and associated rent, number of employees or contractors, estimated cost of goods sold, materials, trucks and equipment, and whether your client base is commercial or retail. An internet search of the business is required and documented in the credit file. Verification that the business is fully operational is required within ten calendar days of closing.
All of that exists to test whether the category and the factor make sense. Which means the narrative is not a formality. It is where a reasonable classification gets supported or undermined.
The five minute version
- Decide honestly whether you sell services or goods.
- Count employees against the 0, 1 to 5, more than 5 bands.
- Apply the factor to twelve months of deposits.
- Multiply by your ownership percentage.
- Then run a personal bank statement calculation and a third-party P&L on the same deposits and compare all three.
If the first number you are ever shown is the only number anybody ran, you are not being advised. You are being processed.
Common questions
What is an expense factor on a bank statement loan? A percentage of your gross business deposits assumed to be the cost of running the business. It is subtracted, and what remains is your qualifying income.
What are the expense factor percentages? Service businesses: 15% with no employees, 30% with one to five, 50% with more than five. Product businesses: 25%, 50% and 85% across the same bands.
Is my business a service or a product business? The guidelines list consulting, accounting, legal, therapy, counseling, financial planning, insurance and information technology as service examples, and retail, food services, restaurant, manufacturing, contracting and construction as product examples.
Can I avoid the expense factor? Sometimes. A third-party prepared profit and loss statement or a third-party prepared expense ratio can replace the fixed table, both floored at 15%, and personal bank statements have no expense factor applied at all.
Does my ownership percentage matter? Yes. Minimum ownership is 25%, and qualifying income on business statements is multiplied by your documented ownership percentage on top of the expense factor.
Can I prepare the profit and loss statement myself? No. A borrower prepared P&L is not permitted under any circumstances. It must come from a CPA, tax attorney, enrolled agent, CTEC member or PTIN holder who filed your last two years of business returns and is unrelated to you.
Related reading
- Self-employed and business owner home loans, the full index for this topic
- Bank Statement Loans: How Lenders Actually Turn Your Deposits Into Qualifying Income
- Restaurant and Hospitality Owners: Why Your Deposits Qualify You for Less
- Personal or Business Bank Statements: Which One Qualifies a Self-Employed Borrower for More
Why bring this file to us
- We classify the business correctly the first time. Service or product is not always obvious, and the difference between the two columns is enormous.
- We run all three income options. The fixed table is one of three routes, and it is frequently the worst of them.
- We count employees the way the table counts them, which decides which band you sit in.
- Broker model. Multiple investors rather than one bank's shelf, which is what a file like this needs when the first answer is no.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending and a Certified Mortgage Planner, NMLS #173141, originating mortgages since 1999. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Send me your business type, your headcount and twelve months of deposits and I will tell you your qualifying income in about five minutes.
Program figures in this post come from the CMG Financial (NMLS #1820) guideline set named above, as published on the revision date given. CMG Financial is the parent company of EPiQ Lending. These figures describe one investor's program at one point in time. Other investors price and underwrite the same borrower differently, guidelines change without notice, and nothing here is an offer of any specific program or terms. Confirm current eligibility on your own file before you plan around any of it.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Rates, terms, and program guidelines change and depend on credit approval, property appraisal, income and asset verification, and other qualifying factors. Not all applicants will qualify. Non-QM, asset-based and business purpose financing carry different pricing, terms and consumer protections than agency financing. Consult your tax advisor regarding the tax treatment of any income or distribution strategy.
Find out which documentation option qualifies you for the most
Bank statements, a third-party P&L and full documentation routinely produce very different qualifying income from the same business. Tell me the shape of yours and I will run all three.
