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Mbanc NMLS #38232 | Equal Housing Opportunity Lender
Why Business Bank Statements Need an Expense Ratio
Business bank accounts mix revenue with business expenses. When $100,000 hits a business account in a given month, that $100,000 isn’t pure income — it’s gross revenue before payroll, vendor payments, rent, insurance, equipment, and other operating costs.
The expense ratio is the mechanism that converts gross business deposits into qualifying income. It answers the question: of every dollar that enters this business, how much is actually available to support a mortgage payment?
The Two Expense Ratio Methods
Fixed 50% Expense Ratio (Default)
The lender applies a 50% deduction to all gross business deposits. Half of every dollar is treated as expenses; the other half is qualifying income.
Formula: Gross monthly deposits × 50% = Monthly qualifying income
Example: $60,000 average monthly deposits × 50% = $30,000 per month qualifying income.
CPA-Certified Expense Ratio (Optional — Usually Better)
A CPA, enrolled agent, or tax preparer reviews the business’s actual operating expenses and certifies in writing what percentage of gross revenue goes to expenses. The minimum they can certify is 10%.
Formula: Gross monthly deposits × (1 – certified expense ratio) = Monthly qualifying income
Example: $60,000 average monthly deposits × (1 – 25%) = $45,000 per month qualifying income.
The difference between these two methods on a $60,000/month deposit business: $15,000 more in monthly qualifying income — which can translate to $200,000–$300,000 more in loan amount.
Who Benefits Most from a CPA Expense Letter
The CPA expense letter is most valuable for businesses where actual operating costs are well below 50% of revenue. Categories include:
Professional services and consulting: Attorneys, accountants, management consultants, IT consultants, financial advisors. Overhead is minimal — home office, software subscriptions, professional memberships. Actual expenses often 15–30% of revenue.
Real estate agents and brokers: Commission income with MLS fees, E&O insurance, marketing, and vehicle expenses often totaling 20–35% of gross commissions.
Freelancers and independent contractors: Writers, designers, developers, and creatives working from home. Expenses often 10–25% of gross revenue.
Specialty consultants: Biotech consultants, engineering consultants, and other highly-paid specialists with minimal overhead.
Businesses with low variable costs: SaaS businesses, content creators, licensing businesses.
Who Should Stick with the 50% Fixed Ratio
Businesses where actual expenses genuinely are close to 50% of revenue should stick with the fixed ratio. Getting a CPA letter certifying 47% when the standard is 50% isn’t worth the cost or time. The CPA letter is valuable when there’s a meaningful gap — 25 percentage points or more between actual expenses and the 50% fixed ratio.
The CPA Letter Requirements
The expense ratio letter must come from:
– A Certified Public Accountant (CPA)
– An enrolled agent (EA)
– A tax preparer with CTEC certification
– A tax attorney
The letter must certify:
– The business’s actual expense ratio for the period covered by the bank statements
– That the preparer has reviewed the business’s financial records
– That they have completed or filed the borrower’s most recent business tax return
The minimum certifiable ratio is 10%. No CPA can certify an expense ratio below 10%.
Frequently Asked Questions
What is the standard expense ratio for a bank statement loan?
50%. Unless a CPA provides a letter certifying a lower actual expense ratio, all gross business deposits are reduced by 50% to determine qualifying income.
Can I get a lower expense ratio without a CPA?
No. A CPA, enrolled agent, or qualifying tax preparer must certify the ratio in writing. The borrower cannot self-certify an expense ratio.
What is the minimum expense ratio a CPA can certify?
10%. Even if a business has essentially zero overhead, the minimum certifiable expense ratio is 10%.
How much does a CPA expense letter cost?
Typically $200–$500 depending on the CPA and the complexity of the business. For most borrowers where actual expenses are well below 50%, the letter pays for itself immediately in the form of higher qualifying income and loan amount.
Does the expense ratio apply to personal bank statements?
No. The expense ratio methodology only applies to business bank statements. Personal statement income is calculated by averaging eligible deposits directly — no expense deduction is applied.
Go Deeper
About the Author
Mayer Dallal is the Managing Director of Mbanc (Mortgage Bank of California, NMLS #38232), a consumer-direct Non-QM lender specializing in bank statement loans, DSCR loans, and asset utilization programs for self-employed borrowers and real estate investors. Mbanc is licensed in 24 states for primary residence lending and 46 states for investment property financing.
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Mbanc NMLS #38232 | Equal Housing Opportunity Lender
| Mortgage Bank of California
