ABC of real estate financing – source of income: business activity

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Apart from the employment contract, the most popular form of obtaining income is business activity. However, in this case, the formal criteria that banks set for borrowers are much stricter than for an employment contract. The basic requirement is the period of running a business. While in the case of an employment contract it is possible to obtain a loan even with a 3-month seniority, in the case of a business activity the time of conducting it must be much longer.

The market standard is a minimum of 12 months

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But some banks require a minimum of 24 months. In a situation where there was a change in the form of employment from an employment contract to business and on the basis of self employment, the borrower continues to cooperate with the same company, some banks are willing to depart and accept a shorter period of business activity than in the standard. Another difference compared to the employment contract concerns the method of calculating the income accepted for the credit analysis. In the case of employment contracts, most banks rely on the average income of the last 3 months.

In business operations

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Income from several or even several months is analyzed, differences in the calculation method also depend on the way in which our income is settled before the Tax Office. If we account for activities in the form of the Revenue and Expense Book, the average income calculated on the basis of the last 12 months is included in the analysis. In some banks, the income from the previous year is added to the income from the current year and on this basis the average income generated by business activity is calculated.

Please note that the bank considers income, not income. Therefore, the costs associated with running a business are also important. Costs also include depreciation of fixed assets accounted for in the Kape. Although it is an accounting cost, without incurring real monthly expenses, banks are not willing to ignore this cost when calculating the income of borrowers from business activities.

In addition

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The bank also analyzes income stability throughout the period under review. This means that the income in each month may not differ significantly from the calculated average. In addition, if monthly income decreases in subsequent months, the bank will certainly ask for clarifications as to why such changes result.

The way of calculating capacity looks slightly different in the case of business activity settled in the form of a lump sum on recorded revenues. Some banks recognize as a net income a certain percentage (10% -40%) of the revenue shown in the PIT-28 statement for the previous year and the record of revenue for the current year. Some banks, based on lump sum operations, rely on customers’ statements about costs and, consequently, about income. Such a statement is also subject to verification by the bank, in addition, most often it is required to make an own contribution from 30-50%.

The last form of accounting for business activities is a tax card

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In this situation, the bank relies on the customer’s statement of income and, like a lump sum payment, requires an own contribution. The alternative is to calculate net income as a multiple of the amount of tax paid.

In business operations, regardless of its form of settlement, the basic requirement is the lack of arrears to the Tax Office and the Social Insurance Institution. Therefore, when planning a loan, you should remember that and be aware that the latest before the payment of the loan (although in most banks before signing the loan agreement) you should provide a certificate of non-arrears with taxes and contributions.