BEVERLY MURDOCK
VANCOUVER ISLAND – Do you have any lending needs on the horizon? As a mortgage expert, there’s a key piece of advice I always give to business owners: keep your accountants informed when planning to arrange any kind of personal lending. This step is important for a smooth borrowing process. Here’s why:
- Income Reporting: Accountants often aim to minimize taxable income by writing off as much as possible. While this can be beneficial for tax purposes, it might pose a problem when you need to borrow money. Lenders usually look at net income, not gross income, especially for sole proprietors. This means your reported income should reflect your earning capacity.
- Income History: Lenders usually require two to three years of income history. For sole proprietors, this includes T1 forms and statements of business activities. For corporations, financial statements are necessary. This history helps us assess:
- Profitability: Can your business afford to continue paying salaries and other expenses?
- Stability: Is your business consistently profitable?
- Management Quality: Does your income history paint a compelling picture of your management skills and business performance?
- CRA Notice of Assessments: Lenders also ask for three years of Canada Revenue Agency notices to spot any pattern of late payments or being in arrears on any balances owing.
- Purpose of Funds: The reason for borrowing is also important. Some typical reasons to ask for a personal loan include:
- Getting a mortgage
- Using home equity to consolidate debt
- Borrowing to renovate your home
- Financing a new car
However, if an applicant wants personal lending to cover business expenses like employee salaries, it may raise red flags about the business’s financial health.
By informing your accountant about your personal lending plans, they can help ensure your financial statements and income reports are prepared in a way that supports your borrowing needs. This proactive approach can simplify the lending process and boost your chances of approval.
Bev Murdock is a Mobile Mortgage Manager with Coastal Community Credit Union. If you have any questions about getting a mortgage, give her a call at 250.268.3194 or send an email to beverly.murdock@cccu.ca.
