Cash Flow Analysis vs Expense Factor: Bank Statement Loans

By Brandon Sooknanan, Founder of StatementReady

A borrower's business deposits are $300,000 for the year. The income the lender ends up using could be far apart depending on the method behind it: a fixed expense factor, a CPA's expense letter, a P&L or a look at what actually left the account. And when a self-employed borrower asks about "cash flow analysis," they may be thinking of something else entirely.

This guide sorts out the terms, shows how the common methods differ on the same statements and lists what to ask the lender before you build the income figure.

This is educational, not underwriting or legal advice. Lenders set their own guidelines; confirm with the lender. Requirements vary by lender and program, and the documents quoted below may change.

Two things people mean by "cash flow analysis"

"Cash flow analysis" can mean two different things on a self-employed file, and neither is the same as an expense factor.

On a tax-return (full-doc) file, it usually means the analysis of the borrower's tax returns. Fannie Mae's Selling Guide says "The lender may use Cash Flow Analysis (Form 1084), another type of cash flow analysis, or an automated tool such as Fannie Mae- approved vendor tools or the Income Calculator, that apply the same principles as Form 1084." [1] Form 1084 starts from tax-return figures, such as Schedule C net profit, and adds back items like depreciation. [2]

On a bank statement file, there are no tax returns to start from, so expenses are estimated another way. That's where the expense factor, the P&L and the deposits-minus-withdrawals method come in.

The methods published programs use

1. A fixed expense factor

The program assumes a set share of deposits went to business expenses. The live StatementReady FAQ describes the expense factor this way: "It's the share of business deposits treated as business expenses rather than income. Lenders set it as a fixed percentage or base it on a CPA letter or P&L."

Newfi Correspondent's Delegated Plus NQM Product Matrix (effective January 13, 2025, the version online when checked) lists "Method 1: Fixed Expense Ratio 50%". [3] Angel Oak's bank statement program page says loans "will be qualified using a default expense factor of 50%" and that "some industries with traditionally higher expense factors will be underwritten with a 70% expense factor". [4] Those are two lenders' published figures, not a rule. Other programs use other numbers.

2. A third-party expense statement

A CPA, accountant or tax preparer states the business's expenses as a percentage of revenue, and that percentage replaces the fixed factor. Newfi's matrix lists "Method 2: Third Party Expense Statement" and says the statement "Must cover the 12 or 24 month period of the bank statements". [3] Programs commonly set a floor on how low the factor can go and a checklist for who can sign. See the CPA letter guide.

3. A third-party P&L

Instead of a percentage, a preparer's profit-and-loss statement supplies the expenses. Newfi's matrix lists "Method 3: Third Part Prepared P&L" (the matrix's own spelling) and says "Gross receipts on P&L must be within a 10% variance of allowable deposits". [3] See bank statement vs 1099 vs P&L loans.

4. Deposits minus withdrawals

This is the method closest to a cash flow analysis of the statements themselves. Instead of assuming expenses, it looks at the money that actually left the account. Newfi's matrix lists "Method 4: Deposits Minus Withdrawals", which subtracts total withdrawals from the deposits it counts, then says to "Add back payments to partners/owners" and "Add back obvious major non-business expenses, like primary residence housing payments, income tax payments, etc." [3]

Even with a fixed factor, cash flow still gets read

Even when a program uses a fixed factor, underwriters still read the statements for cash flow. Arc Home's Closed End Second & HELOC Product Matrix (a second-lien correspondent matrix, effective 06/02/2026), for example, calculates business-account income with "a fixed 50% expense ratio" and also says "Decreasing or negative cash flow must be explained and may result in the loan being denied" and "Business expenses must be reasonable for the type of business". [5] That's one lender's method, and it may change; other programs differ. Confirm with the lender.

Side by side

Method	Starts from	Expenses come from	Typical extra documents
Fixed expense factor	Deposits on the statements	A set percentage from the program	Business narrative, per program
Third-party expense statement	Deposits on the statements	A percentage stated by a CPA, accountant or tax preparer	Signed statement and preparer verification, per program
Third-party P&L	Deposits on the statements	The P&L	Signed P&L and preparer verification, per program
Deposits minus withdrawals	Deposits and withdrawals on the statements	The statements themselves, with add-backs	Per program
Tax-return cash flow analysis (e.g. Form 1084)	Tax returns	The tax returns	Tax returns or transcripts

Which method applies, and the numbers behind it, is up to the program.

The same statements, three results

Made-up numbers for illustration only. Not a lender calculation, and not a prediction of what any program would use.

A borrower owns 100% of a business. Over 12 months the lender counts $300,000 in deposits. The statements show $250,000 in withdrawals, which include $60,000 in owner draws and $30,000 in mortgage payments on the borrower's home.

Fixed 50% factor: $300,000 × 50% = $150,000, or $12,500 a month.
35% from a CPA expense statement: $300,000 × 65% = $195,000, or $16,250 a month.
Deposits minus withdrawals, with those two add-backs: $300,000 − $250,000 + $60,000 + $30,000 = $140,000, or about $11,667 a month.

Same deposits, three different monthly figures. Which one counts, and what can be added back, is the lender's call. That's why it pays to know the method before you quote anything to the borrower.

A third meaning: business funds for the down payment

"Cash flow analysis" also shows up on the asset side. If the borrower plans to use business money for the down payment or reserves, the lender may want to know whether the business can spare it. For conventional loans, Fannie Mae's Selling Guide says: "When a borrower is using self-employment income to qualify for the loan and also intends to use assets from their business as funds for the down payment, closing costs, and/or financial reserves, the lender must perform a business cash flow analysis to confirm that the withdrawal of funds for this transaction will not have a negative impact on the business." [1] Newfi's matrix has a similar line for business funds: "Perform a cash flow analysis to determine that the use of business funds will not have a negative impact on the business, if income from the business is being used to qualify". [3]

If business funds are part of the plan, raise it early. The lender may ask for more recent business statements than the income window alone would need.

Questions to ask the lender before you build the figure

Which expense methods does the program allow for this borrower's business, and is a fixed factor the default?
Is there a floor on a third-party expense factor, and who can sign the letter?
If a P&L is used, how closely must its gross receipts match the deposits?
Is a deposits-minus-withdrawals method offered, and which add-backs does it allow?
Does the business type call for a higher factor or extra documentation?
If business funds go toward the down payment or reserves, what does the lender need to see?

Where StatementReady fits

StatementReady works on the expense-factor side of this. From the StatementReady FAQ:

"StatementReady builds an income worksheet from the uploaded statements using the months, ownership % and expense factor you enter. It's a tool to check against your lender's guidelines, not a lending decision. You and your lender make the final call on what counts as income."

"StatementReady's worksheet does exactly that: average counted deposits × ownership % × (1 − expense factor)."

"You enter the factor from your lender's program on the loan file."

If your program uses a P&L, a deposits-minus-withdrawals method or a tax-return analysis, work that method the way the lender's guide describes it.

From the FAQ:

"No. It doesn't make a credit decision. You review the flags, and you and your lender stay responsible for checking the results against program guidelines."

Get started: statementready.net. Your first 2 loan files are on us. Pricing

FAQ

Is cash flow analysis the same as an expense factor?

No. On a tax-return file, cash flow analysis usually means working from the tax returns, as on Fannie Mae's Form 1084. On a bank statement file, an expense factor is one way to estimate expenses from deposits. Some programs also offer a deposits-minus-withdrawals method that reads expenses from the statements.

What expense factor do lenders use on bank statement loans?

It depends on the program. Some published programs use a 50% default and accept a lower figure with a third-party expense statement, and some use a higher figure for certain industries. Check the lender's matrix.

Can a borrower use a lower expense factor?

Some programs allow it with a third-party expense statement or a P&L, often with a floor and a preparer checklist. Lenders set their own guidelines; confirm with the lender.

Does StatementReady do a Form 1084 cash flow analysis?

No. StatementReady works from bank statements, not tax returns. Its worksheet uses the months, ownership % and expense factor you enter, and you and your lender decide.

Sources (checked 2026-10-28)

Product statements are quoted from the live StatementReady FAQ on the date checked. Sources 3 and 5 are correspondent documents; source 5 is a second-lien matrix. Wholesale (broker) guidelines from the same companies may differ. These documents may change; confirm the current version with the lender. Fannie Mae, Freddie Mac, FHA, VA, USDA and other programs have their own requirements.

Fannie Mae Selling Guide, B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower: https://selling-guide.fanniemae.com/sel/b3-3.5-01/underwriting-factors-and-documentation-self-employed-borrower
Fannie Mae, Cash Flow Analysis (Form 1084), June 2019 version: https://singlefamily.fanniemae.com/media/7746/display
Newfi Correspondent, Delegated Plus NQM Product Matrix, effective January 13, 2025 (PDF): https://newficorrespondent.com/wp-content/uploads/2025/01/Correspondent-Delgated-Plus-NQM-Product-Matrix.pdf
Angel Oak Mortgage Solutions, Bank Statement Loan program page: https://angeloakms.com/programs/bank-statement-mortgage-program/
Arc Home LLC, Closed End Second & HELOC Product Matrix, effective 06/02/2026 (PDF): https://correspondent.archomellc.com/uploads/sites/17045/public/Closed_End_Second___HELOC_Guidelines__6_2_2026_2.pdf
StatementReady FAQ: https://statementready.net/faq

For shorter answers, see the StatementReady FAQ.

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Two things people mean by "cash flow analysis"