EP.19 - Profit & Loss Loans Explained: How Self-Employed Borrowers Get Approved Without Tax Returns

We break down one of the most powerful non-QM loan products available today: the Profit and Loss (P&L) Loan. If you own a cash-heavy business—like a nail salon, restaurant, auto shop, or any service-based operation—and your tax returns don’t reflect your true income, this episode is for you. 

Whether you’re looking to purchase your first home, refinance existing debt, or invest in real estate, this episode breaks down exactly how the P&L loan works, what you need to qualify, and why non-QM lending is no longer “subprime 

What You’ll Learn in This Episode:

• What a Profit & Loss (P&L) loan is and how it works for self-employed borrowers

• Why traditional banks and even bank statement loans fall short for cash-heavy businesses

• The difference between audited vs. unaudited P&L statements and how they affect your rate

• Real success story: Nail salon owner qualifies for a $1.4M home purchase with a P&L loan

• How a P&L cash-out refinance helped a business owner eliminate $2,500/month in credit card debt

• Down payment requirements, credit score guidelines, and rate factors for non-QM P&L loans

• How to use business funds for your down payment and closing costs

Whether you’re self-employed, a real estate investor, or a business owner who’s been turned down by traditional lenders—we specialize in finding the right loan for your situation.

🌐 Visit us: https://seimortgage.com/

📞 Schedule a free consultation to see if a Profit & Loss loan, bank statement loan, DSCR loan, or other non-QM product is right for you.

https://calendly.com/ryan-elendingteam/self-employed-or-investor-consultation

⭐ If this episode helped you, SUBSCRIBE, leave a 5-star review, and share it with a fellow business owner or investor who needs to hear this!

All information provided in this podcast is for educational and informational purposes only. Nothing in this episode should be interpreted as: Legal advice Financial advice Tax advice Real estate advice A commitment to lend An offer, quote, or guarantee of loan terms Loan guidelines, program availability, rates, underwriting rules, and qualification methods — especially for Non-QM mortgage programs — can change at any time and may vary by lender, investor, market conditions, and state regulations. Examples given are hypothetical and may not reflect actual terms available to any borrower. Listeners should independently verify all calculations, assumptions, and program details with qualified professionals. Always consult with a licensed mortgage lender, real estate agent, CPA, financial advisor, or attorney before making decisions related to home financing, investing, or credit. This podcast is not affiliated with, endorsed by, or acting on behalf of Fannie Mae, Freddie Mac, FHA, VA, HUD, or any government agency. No government agency has reviewed or approved the content of this recording. The Turkey Foundation, Inc. 1805 E Garry Ave, Santa Ana, CA 92705 Equal Housing Lender

Transcript

SPEAKER_01 0:00

I just think the system is great for self-employed bar is a lot of cash heavy business owners can't get approved traditionally and even some non-traditional or non-QM loans as well.

SPEAKER_00 0:10

They're taking that as I don't qualify with anybody.

SPEAKER_01 0:13

You are a business owner in a cash-heavy business where you don't put all your deposits into the account every month.

SPEAKER_00 0:20

You're not using any traditional tax return income. You're not using any of your bank statements, you're not using any of your assets. Your only qualifying piece of documentation as it pertains to the income piece is a profit and loss statement.

SPEAKER_01 0:33

And that really will tell the story of how much income you're actually receiving.

SPEAKER_00 0:38

All right, welcome back to another episode of the SEI Mortgage Podcast. I'm your host, Ryan Marks, and we are dedicated to those of you who are self-employed or real estate investors looking to build your portfolios and do not fit inside the traditional lending box. And on today's episode, I am pleased to say that we are welcoming back Dat Win again with the Everyday Lending Group, and we're going to go over another success story how non-QM financing helped solve a borrower from potentially not qualifying. So welcome back again, brother. Yeah, thanks for having me on. Absolutely. So for those of you who haven't listened previously, Dat's the founder of the Everyday Lending Group, where essentially we, you know, expedite all of our loans through that. And SCI Mortgage Podcast, we focus mainly on non-QM loan products. So although, you know, we love the non-QM space, and that's what this podcast is dedicated to, you know, we do have the ability to do any sort of traditional loan. So shameless plug, you know, if you are a first-time home buyer, you're trying to utilize government down payment assistance from a national level, we'd welcome the opportunity to connect with you. But with that said, this is SCI Mortgage Podcast. So I'm excited to talk about this product today. Before we go into the loan program, I'm curious if you would agree, Dad, that historically speaking, how often do you come in contact with a client where they've gone somewhere else previously, like typically, you know, a big bank, and that bank's told them no? And that essentially they're taking that as I don't qualify with anybody, and you're having to kind of tell them, no, there actually is lots of different ways you can qualify. So do you find that's like a common theme when you're maybe receiving a referral from one of your, you know, your realtors or your CPAs or financial advisors, and they're like, hey, you know, this client was told no. Is there anything that you can do?

SPEAKER_01 2:25

Yeah, it it's very common, especially here in Orange County, you know, because as you know, home prices here are a lot higher than national average. So a lot of people here are either self-employed or they diverse uh their taxes, which is not helpful for someone that's trying to get a loan traditionally, right? Usually they go to what their bank first, you know, Chase or Bank America, like those traditional banks. And then there are also some traditional lenders as well. And, you know, once they hear, okay, you don't qualify, then it's like, okay, well, hey, I don't qualify. I guess I gotta, you know, show more taxes, right? So it's very common, I would say, these days.

SPEAKER_00 3:01

Yeah, 100% agree with you. And again, that's just one of the additional reasons why, you know, I moved into the non-QM space and just kind of leaned into that so much because you know, I work for a big bank for, you know, essentially half of my 21-year career. And, you know, you just don't know. I mean, it wasn't anything against us as loan officers at the bigger banks. Like, we didn't know that this type of space existed. And then more importantly, in just the last couple of years, and you know, we've talked about it on other episodes, but it's really blown up. I mean, the non-QM loans, because they're not like the stigma where it's a subprime loan or it's you know terrible interest rates, and you know, if you need this money, like you better be pretty desperate. You know, every single day, I'm getting these emails constantly all day long from these hundreds of investors that we work with, where they're sharpening their pencils and like, hey, we've got, you know, now our rates are this, now our rates are this, and they're just inching closer and closer to like what a regular conventional loan would be. So, you know, that's fantastic because obviously, to your point, in Orange County, if you're dealing with first-time home buyers or just you know, lower down payments, you know, that affordability makes a big difference. And obviously, the interest rate's like a major driving factor of that. So you know, these types of loan products can not only be solutions, but actually be, you know, viable competitive solutions as as far as the rate's concerned.

SPEAKER_01 4:17

Yep, I agree. It's it's definitely growing over the years. I would say it has a good market share now in terms of loans being used for home transactions.

SPEAKER_00 4:26

Yeah. So today I'd love for you to cover for us the profit and loss scenario that we briefly talked about is again, this is like a phenomenal product, just from a sense of like how limited it is as far as the qualification criteria, and if you can kind of you know unpack what your buyer's, you know, scenario and background is and why this profit and loss loan, you know, was a good fit for them.

SPEAKER_01 4:49

Yeah. So the profit and loss loan, it's been around for a few years, but definitely in the last, I would say, two years, it's gotten a lot more popular over here in Orange County. And the reason for that is because a lot of cash heavy business owners can't get approved traditionally, and even some non-traditional or non-QM loans as well. We you had an episode about bank statement loans, right? Where they check your deposits for the last 12 months or 24 months and take the average, right? But what if you are a business owner in a cash heavy business like a nail salon, right? Where sometimes you just don't put all your deposits into the account every month. You put it into your save, or you know, that's that's usually how your business operates money as your mattress money, right? You know what I mean? It's it's Orange County, let's just say it, right? Like nail salon owners here, right?

SPEAKER_00 5:39

I mean, I think that's a pretty standard industry term. You know, everybody knows what mattress money is. Yep.

SPEAKER_01 5:44

Yeah, I'll say it. So, and so you can't get qualified with a non-traditional or non-QM product with 12-month bank statements, but what the what a profit and loss does, it allows you to use your last 12 months profit and loss statement, where the lender is going to take the net income and use that to qualify for you to be approved for a loan, right? And that really will tell the story of how much income you're actually receiving because it's counting the gross revenue minus the expenses, and then your net that's your income. So it's not going off of like, let's just say what we want to see in deposits, right? It's actually giving the balance sheet and the profit and loss of the actual business currently in the last 12 months. So to me, it's more of an accurate assessment of the business for a lender. So that's the beauty of the profit and loss program, in my opinion. It's predominantly for someone that's just trying to get approved to buy a house, but you know, their cash-heavy business or their business actually does generate a lot of business, but it's difficult for them to show it on paper.

SPEAKER_00 6:53

Let's break that down into a couple major bullet points that you just talked about. Number one, you're not using any traditional tax return income. You're not using any of your bank statements, you're not using any of your assets. Your only qualifying piece of documentation as it pertains to the income piece is a profit and loss statement. Another thing worth mentioning is if you are a traditional business owner and you're going into the bank to get financing, guess what? Even if you had a fantastic year or the current year that you're in, you're just crushing it as far as deposits are concerned. Right. But you have not filed those returns yet, you can't use that income that's currently available. The bank is only going to use the most recent filed returns. And on top of that, if your business isn't doing as well, and let's say the previous year you did great, now you're kind of tapering off. Unfortunately, the bank's going to go with the less of the two situations and average down your income if your profit and loss statement is showing less than the prior average. So this is just one of those perfect examples where I just think the system is rigged for self-employed borrowers as it pertains to, you know, the bigger box banks, right? Because they're going to say, well, you can't use this income because it's not filed yet. But oh, but the income is less. Yeah, we're going to use this, and now you make less, right? Like, why does that even exist? So it's huge. I mean, this is a perfect example of why the profit and loss is such a powerful loan, you know, just given the regular terms of you know how the lending industry works. So sorry, I had to just kind of jump in there because this product gets me so excited. So tell me a little bit about this client. Was this she a nail salon owner or you know, and kind of running into the same situation as it?

SPEAKER_01 8:28

She's a nail salon owner, right? So obviously they want to get qualified traditionally when they first met with us. So it's a okay, let's, you know, take a look at your credit, your income, your assets, you know, your the traditional way. Looking at their tax returns and the business tax returns, we looked at and we're like, well, looks like you've expensed a lot of things off. Your net came out to be, you know, 30,000, right? Now, any smart business owners, of course, their whole goal is to mitigate taxes, right? Just for cash flow and reinvestment purposes, right? But just like any business owner or just like anybody uh these days, they find a house they really love and they're like, oh, you know what? We really want to buy this house. We weren't expecting to buy a house, right? Like you hear that a lot, right? And then so at that point, we're like, well, you have two options here. You have to wait until next year and then file your taxes to the appropriate income we need to qualify you traditionally. Or two, I saw that you made, you know, half a million dollars in gross revenue last year. What does it look like currently this year? Now, this was you know back in October, right? So right now we're in March. So in October. So I was like, okay, well, how much have you generated this year? Like, oh yeah, like of course we do well, you know. We just want to mitigate our taxes, just like any business owner, of course.

SPEAKER_00 9:45

Yeah, you want to take advantage of legal loopholes, you know, legal tax deductions available to you. Yeah, yeah, exactly. So yeah.

SPEAKER_01 9:52

So I was like, okay, well, then can you show me your 12-month bank deposits? Because that's the first crack at it, right? And that way I can see all the deposits. Yeah, you know, we have about like, you know,$10,000 to$15,000 in deposits, but sometimes I just set it aside and I'd put it all at once. But so if you want me to put all my deposits in now, I could, but I was like, well, if you're cash heavy, why don't can your CPA provide us a 12-month profit and loss statement to show your actual income? And they're like, Yeah, like of course, you know, we'll we'll call our CPA. I was like, Yeah, because in order for me to qualify you, you know, your deposit looks like it won't be enough to buy this$1.4 million home. So I need, you know, about$20,000 a month in net income in order to qualify you this way. So then they talk to CPA and then their CPA provided them a 12-month profit and loss or PL. We used that, we sent it to the lender and the lender reviewed it. They don't require bank statements, just FYI. They don't require bank statements to match the profit and loss heads up. But, you know, if you want a better interest rate, then yeah, provide a bank statement and they'll they'll give you a better interest rate because you know there's proof that those deposits are there, right?

SPEAKER_00 11:03

Yeah, you've got extra compensating factors, right? So it's like you got good credit, you further verified the income. So yeah, that'll obviously help the rate and terms of that particular product.

SPEAKER_01 11:13

Exactly. I think what a lot of people get confused with when it comes to non-QM or non-traditional loans, is that all the rates a lot higher, right? And I think one thing we all have to understand is that interest rates is all based off of risk, right? So the more you can provide or the higher your credit, the better the interest rate. Okay. So when it comes to non-QM, right, the more you can prove and the better your credit, the better the interest rate the learner is willing to give you. So let's just say, for example, I don't want to get sidetracked, but let's just say you have, you know, one of the non-traditional products or non-QM products is no income. You just have to have great credit and tons of reserves, right? And of course, the interest rate's gonna be a lot higher because there's no income provided. So going back to the profit and loss, yes, the interest rate slightly higher is actually pretty good these days. And if you can actually provide a bank statement to match the profit and loss, you'll get a prime interest rate that's I would say pretty close to what the traditional rates are right now.

SPEAKER_00 12:15

Yeah. So I think that's a good point too. Let's talk about the qualification criteria of using the profit and loss loan. So, number one, there are programs where you can have, you know, the traditional audited profit and loss, like Dat mentioned, where you're gonna have a profit and loss prepared, your CPA is basically signing off on it, like, you know, yes, I agree to this profit and loss. But there are products that exist up to certain loan amounts where it's an unaudited profit and loss where essentially it's self-prepared, right? So to Dat's point, if you go with a self-prepared profit and loss, that is gonna be a different set of interest rates. So probably not a long-term loan, but again, it is a vehicle available if you found that perfect home that you're looking to purchase. But aside from that, talk about the down payment. So, what is like the typical down payment required on a PL loan for a purchase if you're using an audited PL?

SPEAKER_01 13:04

Typical 20%. 20% is what you have to put down. Yes, 20%. Now, there are some investors or lenders out there that will allow you to go with 15% down, but like I mentioned, it's all based on risk, right? So now if you put 15% down, now there's more risk for the lender. More risk means higher interest rate, right? To compensate that. So that's you better have a boatload of cash.

SPEAKER_00 13:28

It's a bad thing.

SPEAKER_01 13:30

Exactly, right?

SPEAKER_00 13:31

Yeah. Any other nuances? I think it's the same in regards of, you know, to that's point again, risk related. If you do a 12-month profit and loss audited versus a 24-month profit and loss audited, you know, you're showing less of an average of income. So that would be another compensating factor that could help drive further drive the interest rate down, the credit score, you know, the occupancy type still applies, right? So for whatever reason, you know, condo townhouse, you know, those typically price a little higher because, you know, you have a common wall or more versus a standalone single family residence. But aside from those things, is there any other things that drive the rate or you know, guidelines to the program?

SPEAKER_01 14:09

I would say two. One would be if it's an investment or primary, for example, and then the the other one would be a business narrative form, you know, just like your standard typical a non-QM loan where if you're a business owner, they want to know how your business operates, the structure. So those are just like the nuances of these type of loans.

SPEAKER_00 14:26

Okay, yeah. And what that's talking about is it's a standard form that the investor uses where there's different questions that talks about do you have employees? Do you have a brick and mortar building? Are you just a business that you can run out of your home where there's, you know, limited expenses versus someone that has multiple warehouses? And then the other thing is proving your self-employment. So if you have this audited PL, do you typically need that additional letter from the CPA talking about the client's business? Like, you know, I've been running this business for two plus years, you know, I'm self-employed, I'm a corporation, whatever that may be.

SPEAKER_01 14:59

Right. How many employees? How is your business operating on a day-to-day basis? And certify that you're self-employed for X amount of years. Now that's if we can't, typically lenders will look up your business just to see if it's incorporated and see how long it's been incorporated for. That should be enough. But, you know, in case if you just switched different corporations and just started it, sorry, that new corporation last year, but yet history before, then that's where the CPA would come into play here.

SPEAKER_00 15:24

Yeah. Another great feature about this product, and it applies to all other non-QM loans, are if you're using funds from your business account, like you have your business checking account and that's gonna be used for your down payment or closing costs. Typically, like the conventional lenders have issues with using business funds. So you can do that, but that's just another thing that you would add on to that CPA letter, where essentially your CPA is stating that, you know, if any business funds are used for the purchase of this home, it's not gonna negatively impact the business. So all of these things are, I mean, basically you have two pieces of documentation, right? You got your CPA letter and your audited PL, and that's it, you know, just to cut right to the chase of, you know, why these products are so powerful as far as the process and just who. For those of you listening who, if you've bought a house and you have a little more complex income and you've gone through the ringer, I mean, the loan officers come back to you like a dozen times, you know, thanks for providing this. Now can you give me this and this and this and this? And it's like a never-ending rabbit hole. All of these non-QM products are very straightforward path, very, you know, short closing times. You can be aggressive on your offers. You know, there's so many pros to it. You know, once you just take away the fact if you can fit inside, you know, the credit requirements and you have the down payments, since to Datt's point, you know, you're typically going to need a 20% or greater, you know, to utilize the profit and loss loan. But if if you're in a situation to do that, you know, that financing is potentially available to you. So anything else worth mentioning on that product? I mean, I think we covered all like the hot topics uh with regards to the PL loan, but you think we left anything out?

SPEAKER_01 16:55

I have an example right now, a business owner out in New Jersey who owns a supermarket, and he was trying to get a loan against his property because his property is worth a million dollars. It's free and clear, but he's been using maxing out all his credit cards for supplies and whatnot. And you know, he had some families, you know, personal things going on. So he's definitely over-leveraged. So now he's paying, you know,$2,500 in just credit card interest right now as a business owner, right? And then so two things happened. One is he didn't show enough income on his taxes. The second part is that since he used a lot of his credit cards, now his credit went from you know$740 down to like a$650, right? So now you got a couple things working against you. So when he reached out to me, I was like, Well, let me take a look at it, right? And of course, anybody in that situation, they're like, Well, let me see what the interest looks like, right? And the interest was like 7%. And he was like, Well, you know, 7%, and I was like, Yes, 7%. But if you look at all the credit cards that you're paying right now, what does that look like? Yeah, right. 20 and 30.

SPEAKER_00 18:02

Yeah, and I think your credit score is, you know, taking a meeting.

SPEAKER_01 18:07

Yeah, so and I broke it down to him. I'm like, well, you know, you gotta look at this overall as a whole, short-term and long term here, right? All your credit cards right now, you're paying 15 to 20 just interest only, right? Let's take a look at this here, right? Yes, 7%. I agree with you. Yeah, it's relatively a little bit higher, right? But you understand your credit score, right? Understand the loan program that we're doing here for you, right? But if you were to put this on a monthly expense compared to your credit card's monthly expense, which one makes more sense here, right? Because this will take care of all your credit cards. Your principal and interest came out to be like$1,700 a month, right? On a 30-year fix. And then on top of that, now what's going to happen? I agree with you. Let's just say call it like it is. You don't like the interest rate, fine. But in about one year, once you pay off all these credit cards, you have a little bit extra money for reserves, you get your back on your feet, right? You take care of your personal things that you need to take care of, right? Then what's going to happen is that your credit should go back to where it was before all this, which was you said$740, right? So given that, then at that time, you can then refinance into a lower rate for your mortgage, right? And if you wanted to, then you can also pay taxes on your next year's tax returns. And then that way you can get the traditional mortgage and get you the best interest rate possible, right? Totally up to you, right?

SPEAKER_00 19:31

Yeah. And honestly, like, you know, we all run into that from time to time where you know the rate may be higher than what our clients are expecting, but it's, you know, it's important that we also help paint the picture exactly like you did. Because at the end of the day, everything comes down to like math. I mean, it's basic math. So, what are your credit card payments? Those payments are amortized over 30 years. So, if you want to figure out what your rate is, just look at your minimum payment over 30 years, it's going to tell you based on your balance, this is what you're paying on your credit cards. And it's, I'd be willing to bet it's you know upwards of 20 plus percent until I think they're passing that law where they're trying to say that max credit card interest rates are 10%, but that's still 3% higher than that's loan.

SPEAKER_01 20:09

The CEO thing is, yeah.

SPEAKER_00 20:10

You know, and full disclaimer, uh, DAT and I are not licensed CPAs by any means, so consult a tax professional. However, with that said, you know, dat gave his client a first mortgage. Well, that's tax deductible mortgage interest now, which your credit card interest is not tax deductible, right? So, you know, there's that's further reducing the amount of you know technical payments that you're making if you need that additional deduction. So, yeah, I mean, I think that's a great example of how you know a cash out refinance using a PL loan, I confidently think that the person's now in a better position. And yes, I agree with you, his score is likely to increase dramatically because he's just over-leverage, right? Nowadays, if you're like over 25% of your revolving available credit, it can start to hurt your credit score. Once you get over 50, you'll definitely start losing points, right? Because it's and again, I'm not a financial expert, but typically it's better to have rather than one credit card maxed out, you're better off having like three credit cards with the same amount of money spread out over that because it's on credit, as far as the digital credit world's concerned, that's just showing you that you have all this available credit. Now you're at 25% of your credit versus you know, 100% of one card, thinking like, oh, I don't want to open a bunch of cards up. So with that said, don't go open a bunch of cards up. I mean, it doesn't look good either having like 20 credit cards or whatever, but you know, in an isolated example, it's leveraging the debt to your advantage. So awesome. Yeah. Well, I think that's a perfect example then for us to end on for this episode about the profit and loss loan, how it can apply to a purchase transaction or a refinance as a great solution in the non QM space. And thank you again, Dat, for being a part of you know this community here with us. Um I'm glad you're able to hop on, and we'll definitely continue to do these success stories with these loan products in future episodes to come. And if you want additional information regarding these loan products, feel free to head. Over to SCI Mortgage.com where you can find our contact information, or you can go to the everydaylendinggroup.com where you can get in touch with debt in regards to all the other traditional products that are available for the conventional space, uh, government, first time home buyer, and so on. So thank you so much, brother. I appreciate you, man. And until then, let your money work smarter, not harder. We'll see ya.