Quick answer
Self-employed people get business loans all the time. Banks usually want two years of tax returns and notices of assessment and assess the income you declared, adding back items like depreciation. Non-bank lenders will often use bank statements or BAS instead. Keeping taxable income low saves tax but can cut what you can borrow, so plan applications around what your returns show.
Key points
- Banks typically average two years of declared income, and lean on the lower year if income is falling
- Non-cash costs such as depreciation, and one-off expenses, are commonly added back to your profit
- Your notice of assessment proves the return was lodged and shows any tax still owed
- As a sole trader, your personal credit file is your business credit file
- Non-bank lenders can assess bank statements when your tax return undersells the business
Why does a self-employed person with a full diary sometimes get offered less than a salaried employee earning half as much? Because a payslip is easy to verify and a business is not. Lenders have to reconstruct what you actually earn from tax returns, statements and accounts, and the way they do that has real consequences for how much you can borrow.
This page is about borrowing for the business: equipment, vehicles, stock, working capital, a fit-out. It applies whether you’re a sole trader, a partner, a contractor or a director of your own small company. If you’re specifically a sole trader, sole trader business loans covers the structure in more depth.
How a lender turns your tax return into income
A bank-style assessment usually goes something like this:
- Start with net profit from your business return (or the business schedule of your personal return, if you’re a sole trader).
- Add back items that aren’t real cash costs or won’t recur. These are called add-backs.
- Average two years, or take the lower year if income is falling.
- Subtract existing commitments such as other loans, leases and card limits.
- Test the new repayment against what’s left, with a buffer.
The add-backs are worth understanding, because they can change the answer a lot:
| Commonly added back | Why | Usually not added back |
|---|---|---|
| Depreciation and amortisation | Non-cash accounting cost | Ordinary running costs |
| Interest on a loan being paid out by the new loan | It disappears after settlement | Interest on debts that continue |
| Truly non-recurring spending, such as moving premises | Won’t happen again | Costs that turn up most years |
| Above-market wages to a spouse, in some cases | Discretionary | Market wages for real work |
| Instant asset write-off claims | The asset lasts for years | Repairs and maintenance |
Each lender has its own policy, so ask what it adds back before you assume.
The tax-saving trap
Here’s the tension most self-employed people discover too late. Your accountant’s job is to legally shrink the profit you pay tax on. A lender’s job is to lend against the income you declared. Every legitimate deduction that lowered your tax also lowered your borrowing power.
A builder who claimed a large write-off on a new truck in June may have saved a meaningful amount of tax, and simultaneously made last year look like a much leaner year to the bank. Add-backs recover some of that, not always all of it.
If you know a significant loan is coming in the next twelve to eighteen months, talk to your accountant now. It’s not about paying more tax than you should; it’s about timing big deductions and presenting the year in a way a lender can read clearly.
Documents for self-employed borrowers
| Document | Bank | Non-bank |
|---|---|---|
| Two years of tax returns (business and personal) | Usually required | Sometimes |
| Notices of assessment | Usually required | Sometimes |
| Business bank statements (6–12 months) | Often | Usually the main evidence |
| Lodged BAS | Often | Often |
| Year-to-date P&L | Often for larger loans | Helpful |
| ATO account showing no debt, or a plan | Often | Often |
The notice of assessment matters more than people think. It proves the return was actually lodged and processed, and it shows whether tax is still owing. If you’re a sole trader, you can download it yourself from myGov once your account is linked to the ATO, under your income tax lodgement history. Lenders generally want it to match the return you’ve supplied, line for line.
No returns yet, or returns that are well out of date? See business loans without financials and when your accountant is behind.
If you’d like a view on how a lender would read your returns, put your details through our short form.
Things lenders watch for in self-employed applications
- One big client. A contractor paid by a single company is, in effect, dependent on one contract. Expect questions about the contract’s age and your plan should it finish. A written contract helps.
- Falling income. If last year was down, explain why and show current figures. A one-off dip with recovery underway reads very differently from a steady slide.
- Tax debt. Self-employed people are responsible for setting aside their own tax, and an ATO balance on the notice of assessment is common. Lenders are more comfortable when it’s on a payment plan being met.
- Personal credit. For a sole trader, there’s no separate business credit file. Missed personal repayments affect business borrowing directly.
- Mixed accounts. Paying household bills from the business account muddies both your profit and your spending.
Which lenders suit self-employed borrowers?
Banks are a great option when your returns are up to date, income is steady or rising and your credit file is clean. They’re typically the lowest-cost money, so if you fit, take their offer seriously.
If the bank has said no, or your returns don’t reflect the business you run today, these are the next stops:
- Non-bank lenders that assess bank statements and BAS rather than tax returns. See low doc business loans.
- Equipment and vehicle financiers, where the asset supports the loan.
- Property-secured lenders, from $20k, when there’s equity in property you own and you need more, or your credit file is patchy.
Before you choose, run your numbers through the business borrowing power calculator to get a rough ceiling.
An illustrative example
A freelance videographer has traded for four years. Last year’s return shows a net profit of $58k, down from $81k, because they wrote off $26k of new camera gear in June. A bank averaging the two years, then leaning on the lower one, offers less than the $40k they need for a production van.
Their accountant points out that the $26k write-off is a non-cash item the lender should add back, lifting last year to about $84k. With that explanation in writing and nine months of statements showing steady deposits, a non-bank lender finances the van, and the bank remains an option for future borrowing.
Self-employed and planning your next move: talk to a person
Working for yourself means wearing every hat, including the one that has to explain your income to a lender. We do that translation every day, matching self-employed owners with lenders whose policies actually fit how they earn.
Allow about a minute for our enquiry. Simply enquiring leaves your credit file alone, so there’s no downside to asking. We don’t fire your file out to every lender we know. A real person here reads it properly and picks up the phone to you. Give us true figures for income, trading time and any tax owing; with those, our first suggestion should be a lender that will genuinely approve you.
Frequently asked questions
How do lenders work out income for self-employed borrowers?
Banks generally take net profit from your last two tax returns, add back allowable items such as depreciation, interest on loans being refinanced and genuine one-off costs, then average the years. Non-bank lenders may instead size a loan on deposits in your business bank statements.
How many years of tax returns do I need?
Banks usually ask for two years of personal and business returns plus notices of assessment. Some lenders accept one year if the business is established and the figures are strong. Low doc lenders may need none, relying on BAS or bank statements.
Can I get a business loan if I'm self-employed with bad credit?
Yes, though the bank route gets harder. Non-bank lenders consider credit issues case by case, and property-secured lenders focus mostly on equity and the repayment plan. See our page on bad credit business loans.
Where do I get my notice of assessment?
If you're a sole trader, through myGov once it's linked to the ATO, in the income tax lodgement history, where it downloads as a PDF. Your tax agent can also send it. Companies and trusts get theirs through the agent or Online services for business.
Is a business loan or a personal loan better when self-employed?
If the money is for the business, a business loan is usually the better fit. It's assessed on business income, can be sized to the purpose and keeps the borrowing clearly in the business. Our comparison page walks through the differences.
My income dropped last year. Will that stop me borrowing?
It will reduce what a bank will lend, because many use the lower year when income falls. A short explanation of why it dropped, and current figures showing recovery, can help. Non-bank lenders focused on recent bank statements may see a better picture.