Did You know that Borrower’s who are LESS than 25% owners in a business DO NOT require business tax returns?
Everyone knows that a Borrower who has 25% or more ownership in a business is considered self-employed and business returns are usually required. But what about when they are less than 25%?
Our conventional wholesale lenders are very specific about Borrowers who receive K1 income BUT are NOT considered self-employed. 2-year history of receiving this income is REQUIRED. Also:
The K1 schedule needs to reflect a history of cash distributions then NO further documentation to show business liquidity is required
If the K1 schedule DOES NOT show a history of cash distributions then the Lender MUST obtain some kind of documentation to show business liquidity IS REQUIRED. It’s up to the Lender what to ask for but two good examples are:
- Schedule L of the business return OR 2 months of business bank statements.
- An exception to the two year requirement can be waived IF:
The Borrower recently acquired a small percentage of ownership into a professional business ( examples given: law firm medical practice) after many years of employment with them. A copy of the ownership agreement and proof of recent receipt of income is required.
If you are self-employed and you own a business, you need to talk to us before obtaining a business. Call us.