You did eight figures through the register or close to it. You employ two dozen people. You have been in the same location for years and the place is full on a Tuesday.
And the loan officer tells you your qualifying income is a number that would embarrass a first-year assistant manager.
They are not making it up. They are reading one table, and you are sitting in the worst cell of it.
Where restaurants sit
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:
Product business, meaning a business that sells goods. The examples named include retail, food services, restaurant, manufacturing, contracting and construction.
- 0 employees: 25% expense factor
- 1 to 5 employees: 50% expense factor
- More than 5 employees: 85% expense factor
A restaurant with more than five employees carries an 85% expense factor. Which means the fixed formula treats fifteen percent of your gross deposits as qualifying income.
Compare that to a consultant working alone, whose 15% factor leaves them eighty-five percent of deposits. The same deposits produce qualifying income that differs by more than five and a half times, on nothing but category and headcount.
Why the table is built that way
It is not arbitrary. A restaurant genuinely does run on thin margins with enormous cost of goods sold, and a table that has to work for every food service business in the country will be set where most of them are.
The problem is that it is a blunt instrument applied to a specific business. A well-run restaurant with real margin, a catering operation, a bar with a favourable cost structure, a hospitality business whose deposits include pass-through items: all of them get the same 85%.
That is why the guidelines do not stop at the table.
Route one: the third-party prepared P&L
Option 2 replaces the fixed factor with your actual numbers. Qualifying income is the lower of the net income shown on a validated third-party prepared profit and loss statement, or the monthly income you disclosed on the initial signed 1003, absent a satisfactory signed explanation for a lower figure on the application.
And critically, on that route these items may be added back to business net income: depreciation, depletion, amortization, casualty losses, and other losses or expenses that are not consistent and recurring.
A restaurant is a depreciation-heavy business. Kitchen equipment, refrigeration, the buildout, furniture, point of sale systems, vehicles. Every dollar of that reduced your taxable income without taking cash out of the business, and on this route it comes back.
The validation: business bank statements are used to validate the P&L, and gross revenue listed on the P&L must be within plus or minus 10% of total qualified deposits. Your statements are the check. If the P&L and the deposits do not tell the same story, that is a credibility problem rather than a documentation one, and it ends the file rather than lowering the number.
Who can prepare it: a tax professional, defined as a CPA, tax attorney, enrolled agent, California Tax Educational Council member, or paid tax professional with a PTIN. They must sign it alongside you, cover the same months as the bank statements, attest they audited the business financial statements or reviewed your working papers, attest they are not related to you or associated with your business, and have filed your most recent two years of business tax returns.
A borrower prepared P&L is not permitted under any circumstances.
The floor: a business qualifying with a P&L showing less than a 15% expense ratio is limited to 15%. No restaurant is getting near that, so it will not bind on your file.
Route two: the third-party prepared expense ratio
Option 3 sits between the two. A tax professional prepares and signs an expense statement specifying business expense as a percentage of gross annual sales or revenue, and net income is calculated as eligible business deposits multiplied by 100% minus that ratio.
Same attestation requirements, same 15% floor. One extra restriction that matters for owner-operators: self-employed borrowers who have filed their own business tax returns are ineligible for this option.
If your real expense ratio is meaningfully better than 85%, and it is documented and defensible, this route produces a number the fixed table never will.
The merchant processing problem
Restaurants have a specific statement problem that other businesses do not.
Card sales settle net of processing fees, sometimes in batched deposits that do not line up with sales days. Delivery platforms remit net of commission, often substantially net. Tips may flow through the account and out again.
So gross revenue and gross deposits are genuinely different numbers for a restaurant, in a way they are not for a consultant. And the P&L route requires them to be within plus or minus 10% of each other.
Get this reconciled before you submit anything. A P&L showing gross sales against statements showing net settlements will fail that test even though both documents are accurate. Your accountant knows how to present it. Ask them to.
Headcount, and the cliff
The bands are 0, 1 to 5, and more than 5. Crossing from five to six employees moves a product business from 50% to 85%.
Most restaurants are well past that line and it is not a lever. But the business narrative required on the bank statement route asks for your number of employees or contractors, alongside your business profile, location and associated rent, 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 file.
Be accurate and be consistent. That narrative is where a classification is supported or undermined.
What to do
- Do not accept a qualifying income figure produced by the fixed table as the answer. It is one of three.
- Ask your CPA whether they will prepare a P&L meeting the attestation requirements, including having filed your last two years of business returns.
- Reconcile gross revenue against gross deposits, accounting for merchant processing and delivery platform netting, before the P&L is drafted.
- Add depreciation and amortization back and see what the number becomes.
- Compare all three routes and submit the one that qualifies you for the most.
A restaurant owner who is only ever shown the 85% number has not been advised. They have been sorted.
Common questions
Why is my qualifying income so low as a restaurant owner? The fixed expense ratio table classes restaurants as a product business, and a product business with more than five employees carries an 85% expense factor. That leaves fifteen percent of deposits as qualifying income.
Is there a way around the 85% expense factor? Two. A third-party prepared profit and loss statement validated against your bank statements, or a third-party prepared expense ratio. Both are floored at 15% and both require a qualified tax professional.
Can I add back my kitchen equipment depreciation? On the third-party P&L route, yes. Depreciation, depletion, amortization, casualty losses and other non-recurring expenses may be added back to business net income.
My deposits are net of card processing fees. Is that a problem? It has to be reconciled. Gross revenue on the P&L must be within plus or minus 10% of total qualified deposits, and merchant settlement netting can break that test even when both documents are accurate.
Can my bookkeeper prepare the profit and loss statement? Only if they meet the definition of a tax professional, which is a CPA, tax attorney, enrolled agent, CTEC member or PTIN holder, and they must have filed your last two years of business returns and be unrelated to you and your business.
Related reading
- Self-employed and business owner home loans, the full index for this topic
- The Expense Factor Table: Why Your Industry Decides Your Qualifying Income
- Write-Offs and Qualifying Income: The Trade Every Business Owner Makes Without Knowing
- 12-Month P&L Loans and Written Verification of Employment: Qualifying Without Tax Returns or Bank Statements
Why bring this file to us
- We never run a restaurant on the fixed table alone. It produces the worst number available to you and it is one of three options.
- We know which professional can prepare the P&L, and the attestations they have to make, so the document is right the first time.
- We read the merchant deposits properly, because how your processor settles changes what the statements show.
- 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.
Do not let anyone run your file on the fixed table without pricing a third-party P&L against it. On a restaurant the gap between those two numbers is usually enormous.
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.
