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Expense Factors on Bank-Statement Loans: How Lenders Turn Deposits into Income
Oct 16, 2026 · Varaxon Technologies LLC d/b/a StatementReady
This is educational, not underwriting guidance. Always follow your program's current guidelines.
Business deposits aren't profit. On a business bank-statement loan, the lender applies an expense factor to estimate how much of the revenue the owner actually keeps. It's often the single biggest lever in the calculation. Moving from a 50% factor to 30% raises qualifying income by 40%.
Here's how published programs set it and what it takes to use a lower one.
Where the expense factor sits in the formula
(Eligible deposits × ownership %) × (1 − expense factor) ÷ 12 or 24 months
Arch Mortgage Funding's calculator states its standard version as "(Eligible deposits × ownership %) × 50% ÷ 12 or 24 months." [1]
The methods lenders publish
| Program document | Fixed / default factor | Lower factor allowed with | Floor |
|---|---|---|---|
| Arch Mortgage Funding [1] | 50% standard | CPA or licensed tax preparer expense-factor statement | 10% |
| Angel Oak [2] | 50% default; some higher-expense industries underwritten at 70% | Statement from a third-party CPA, tax preparer or bookkeeping company | Not stated on the page |
| Plaza Solutions Non-QM 1 [3] | 50% fixed ratio, with extra documentation for certain industries | Expense statement letter from a CPA/accountant, IRS Enrolled Agent or tax preparer | 10% |
| Newfi Correspondent NQM matrix (eff. Jan 13, 2025) [4] | 50% fixed | Third-party expense statement, or third-party prepared P&L; also a deposits-minus-withdrawals method | Not stated |
| Silver Hill program sheet [5] | 50% fixed | CPA/accountant preparer statement, or a P&L covering the same period | Not stated |
Option 1: the fixed 50% factor
It's the default because it needs no outside paperwork about expenses. But "fixed" doesn't mean "automatic":
- Arch says its Business Narrative Form (or equivalent) should be used to judge whether the business qualifies for the 50% option based on how reasonable its expenses are. The option can't be used if third-party documentation showing an expense ratio over 50% has been disclosed. [1]
- Plaza lists industries that may be eligible for 50% but need extra documentation or explanation showing they aren't high-expense businesses: construction/builder (single-employee tradesmen and handymen are eligible), manufacturing, retail and wholesale trade, hospitality and food and beverage, and transportation. A borrower-completed business narrative covering location/rent, employees and contractors, COGS and physical assets is required. [3]
- Angel Oak underwrites some industries with traditionally higher expenses at 70%. [2]
Option 2: a custom factor from a third party
A lower factor needs a signed statement from someone outside the business. Arch's instructions are the most detailed. The statement must include [1]:
- the business name
- expenses as a percentage of gross annual revenue
- a statement that the preparer filed the borrower's most recent tax return
- the preparer's license verification
- signatures from both the preparer and the borrower(s)
Arch's preparer must have filed the most recent return, have audited or reviewed the business financials, not be related to or affiliated with the business, and be licensed. [1]
Newfi's matrix similarly requires the statement to cover the 12- or 24-month statement period, and the preparer (or their firm) must have prepared the most recent tax returns. [4] Plaza requires evidence of the preparer's business in the credit file. [3]
See article 16 for what the letter itself should say.
Option 3: a P&L
Some programs accept a third-party P&L instead of a factor. Newfi's matrix requires it to be signed and dated by a CPA, accountant or tax preparer, to cover the statement period, and for P&L gross receipts to be within 10% of allowable deposits. [4] Silver Hill lists a P&L covering the same period as the bank statements. [5]
Worked example (illustrative numbers)
A borrower owns 100% of a consulting business with $240,000 in eligible deposits over 12 months.
| Factor | Net deposits | Monthly income |
|---|---|---|
| 50% fixed | $120,000 | $10,000 |
| 30% custom (CPA letter) | $168,000 | $14,000 |
| 70% (higher-expense industry) | $72,000 | $6,000 |
Same deposits, a range from $6,000 to $14,000 a month. That's why underwriters look hard at whether the factor fits the business.
Common mistakes
- Using a CPA letter that doesn't match the lender's checklist (missing the tax-return statement, license verification or borrower signature).
- Applying 50% to a business that's obviously high-expense, such as one with inventory, a storefront and staff.
- Forgetting ownership %. The factor applies after ownership on Arch's formula. [1]
Sources (checked 2026-10-15)
Lender rules as published on the sources_verified date; check the current guide before relying on them.
- Arch Mortgage Funding, Bank Statement Income Calculator (XLSX, © 2026), Calculation Instructions tab, linked from https://mortgage.archgroup.com/arch-mortgage-funding/calculators/ (file: https://mortgage.archgroup.com/wp-content/uploads/sites/4/MCUS-1531AMF-23J-AMF-Bank-Statement-Income-Calculator.xlsx)
- Angel Oak Mortgage Solutions, Bank Statement Loan program page: https://angeloakms.com/programs/bank-statement-mortgage-program/
- Plaza Home Mortgage, Solutions Non-QM 1 Product Snapshot (PDF, © 2025): https://www.plazahomemortgage.com/DownloadFile.aspx?FileName=Solutions+Non-QM+1+Product+Snapshot.pdf&FilePath=%5CDocuments%5CPlazaPrograms%5CSolutions+Non-QM+1+Product+Snapshot.pdf
- Newfi Correspondent, Delegated Plus NQM Product Matrix, effective January 13, 2025 (PDF): https://newficorrespondent.com/wp-content/uploads/2025/01/Correspondent-Delgated-Plus-NQM-Product-Matrix.pdf
- Bank Statement product sheet (© 2025 Silver Hill Capital), hosted at https://www.lakeviewcorrespondent.com/wp-content/uploads/2025/07/Bank-Statement-.pdf
Sources 3–5 are correspondent or product documents. Wholesale (broker) guidelines from the same companies may differ.
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