Quick answer
Add-backs are expenses a lender or buyer adds back to a business's reported profit because they won't continue, aren't paid in cash, or relate to debt being replaced. Common examples are depreciation, interest on loans being refinanced, one-off costs and owner perks run through the books. The adjusted figure shows the cash the business genuinely has available to service a new loan.
Key points
- They turn taxable profit into a truer picture of repayment capacity
- Depreciation and interest on debt being paid out are the add-backs most lenders accept
- One-off and personal expenses need evidence, usually from your accountant
- Good lenders also subtract: an owner who takes no wage is a cost a buyer or lender will allow for
The profit on your tax return is often not the profit a lender cares about. Add-backs are the adjustments that bridge the gap: costs added back to net profit because they won’t recur, didn’t involve cash leaving the account, or will disappear once the new loan is in place.
Why your tax profit undersells you
Australian business owners, quite sensibly, run their accounts to pay no more tax than they must. Equipment is depreciated, the vehicle is run through the business, and a year with an unusual legal bill still gets deducted in full. The result can be a modest bottom line from a business that throws off healthy cash.
A credit assessor’s real question is narrower: after the new loan, will there be enough cash each month to meet the repayments? That’s serviceability, and add-backs are how they answer it fairly.
The common add-backs, and how lenders treat them
| Item | Why it’s added back | How lenders usually treat it |
|---|---|---|
| Depreciation and amortisation | A tax deduction, not a cash payment this year | Almost always accepted |
| Interest on debt being refinanced | That loan disappears when the new one settles | Accepted for the debt actually being paid out |
| One-off costs (a legal dispute, a flood clean-up, a relocation) | Won’t happen again | Accepted with invoices or an accountant’s note |
| Owner wages above a market rate | A new owner or lender could pay less | Partly accepted, if a fair replacement wage is left in |
| Private expenses run through the business | Not a true business cost | Often queried; needs clear ledger evidence |
The other side: deductions lenders make
Experienced assessors and buyers don’t only add back. If an owner works 60 hours a week and pays themselves nothing, a lender will allow for a reasonable wage because someone has to do that work. If the business rents its premises from the owner’s family well below market, a lender buying into the numbers will assume market rent. Recurring maintenance that was skipped one year may be put back in as a cost.
An add-back schedule that only ever goes up looks like a sales pitch. One that shows the deductions too looks like an honest set of numbers, and gets approved faster.
Want to know whether your adjusted figures support the loan you need? Run them past us and we’ll give you a straight view.
Worked example: a café refinancing its equipment debt
A suburban café reports net profit before tax of $68k for the year. The owner wants to consolidate an equipment loan and an overdraft into one $150k facility. The accountant prepares this schedule:
| Amount | |
|---|---|
| Net profit before tax | $68k |
| Add: depreciation on the coffee machine and fit-out | $22k |
| Add: interest on the equipment loan being paid out | $9k |
| Add: legal fees for a one-off lease dispute | $6k |
| Less: allowance for the owner’s partner, who works the weekend shifts unpaid | ($15k) |
| Adjusted profit available for debt service | $90k |
On the raw $68k, the lender might have thought the new repayments too tight. On $90k, with each line backed by the ledger and an accountant’s letter, there is comfortable room. The $15k deduction actually helped: it showed the assessor nothing was being hidden.
Lenders then compare the adjusted figure with the yearly repayments, a ratio our debt service coverage ratio calculator works out for you.
Where add-backs matter most
They carry the most weight in bank lending, larger facilities and business acquisition loans, where the price of a business is often set as a multiple of adjusted earnings. They matter less for low doc and revenue-based products, which lean on turnover rather than profit.
Related terms
- EBITDA: the standard starting point before owner-specific add-backs
- Serviceability: the test add-backs are designed to inform
- Net profit: the figure the adjustments start from
- Our guide on what your accountant should send a lender covers how to present an add-back schedule
When the adjusted numbers tell a better story
If your profit on paper looks thin but the business clearly pays its way, it’s worth a conversation. Our form takes around sixty seconds and leaves your credit file untouched, because enquiring doesn’t trigger a credit check. You won’t be passed around a list of lenders; one person looks at your figures and calls to discuss them. Put in your real turnover and profit, add-backs and all, so we can line up a lender that reads them the way you do.
Frequently asked questions
Which add-backs do lenders usually accept?
Depreciation and amortisation, because they're non-cash, and interest on any loan the new facility will pay out. Genuine one-off costs are usually accepted with evidence. Discretionary items, such as above-market owner wages or private expenses, are judged case by case.
Why would a lender reject an add-back?
Usually because it isn't clearly one-off or can't be proven. A repair bill that appears every year isn't a one-off, and a personal expense with no supporting ledger entries looks like a guess. Lenders also reject add-backs that leave the business with no allowance for the owner's own labour.
Are add-backs the same as EBITDA?
They overlap. EBITDA adds back interest, tax, depreciation and amortisation. Add-backs go further by also adjusting for one-off and owner-specific costs, which produces what's often called adjusted or normalised EBITDA.
Do add-backs matter for low doc loans?
Less so. Low doc lenders usually look at turnover from BAS or bank statements rather than adjusted profit. Add-backs matter most for bank loans, larger facilities and business acquisition finance, where profit and serviceability drive the decision.
Who should prepare the add-back schedule?
Your accountant. A short letter or schedule on their letterhead, tied to the general ledger, carries far more weight with a credit assessor than a list you've written yourself.