Small Business – Proving Income
June 27, 2008 9:44 am Proving income, Small BusinessAs has been mentioned previously in this blog, I am a huge proponent of small business owners. They don’t always get covered in the press but I believe they are the drivers of our strong western economy. It is this deep respect that drives me to learn how to help these people better.
Contrary to many mortgage myths small business owners can get a mortgage for their home and/or revenue properties. For the most part they have to meet all the same criteria their employed counterparts would have to meet with a key exception – proving income. Employees of companies simply get a letter from their HR department and a recent pay stub to show what their yearly wage is. Small business owners don’t generally have pay stubs and no lender would accept a letter for the small business owner that was created and signed by the small business owner. So we find other ways to prove your income.
One of the comments I typically hear from small business owners is, “Why do they ask for so much paperwork?” The reason why is to get third party corroboration from a few sources to ensure the person is active in a business that makes money.
There are two different ways to do this depending if you are a sole proprietor or a shareholder in an incorporated company.
Sole proprietor
Sole proprietors report to the government their business revenue within their personal tax submission (T1 General) every year. So when they need a mortgage they often need to ensure that they have filed their taxes for the previous two years (including the statement of business activities) and paid all their taxes owning. A copy of the T1 Generals submitted to CCRA will be sufficient to satisfy the lenders proof of income criteria in most cases. If taxes are shown to be owed then we need a receipt that shows these have been paid.
Shareholder of an incorporated company
If a person is at least a 50% shareholder in a corporation then the lender will need to see the following:
- The last two years audited financial statements,
- The last two years Notice of Assessments – to confirm that no taxes are owed to the government. If taxes are shown to be owed then a receipt is needed that shows these have been paid.
Both sole proprietors and shareholders in an incorporated company may also need to show one of the following:
- A recent GST return,
- The company’s business license,
- The company’s articles of incorporation.
The above noted documentation will be required and in some cases further documents may be needed as well. Please contact me directly to determine what specific documents you will need.
As I mentioned earlier I respect small business owners and want to make the process for them as simple as possible. This is why I educate my customers so they know what to expect.
