# Why Bank Statement Income Is Lower Than the Deposits: How to Explain It to a Self-Employed Borrower By Brandon Sooknanan, Founder of StatementReady Almost every self-employed borrower has the same reaction the first time they see the income figure on a bank statement loan: "But I deposited far more than that." They're right about the deposits. The income figure is a different number, built in steps, and each step usually makes it smaller. This guide is for brokers and loan officers. It walks through the steps in plain language, with a sample worked example, so you can explain the number to a borrower before it becomes a surprise. *This is educational, not underwriting or legal advice. Lenders set their own guidelines; confirm with the lender. Requirements vary by lender and program.* ## The short version for the borrower Here's a way to say it on the phone: "The lender doesn't count every dollar that hits the account. It starts with the deposits it counts, averages them over the months it looks at, takes your share of the business, and then sets aside part of it as business expenses. What's left is the income figure." The [StatementReady FAQ](https://statementready.net/faq) describes a common method the same way: "add up the deposits your lender will count over the look-back period, divide by the number of months, then apply the borrower's ownership share and the program's expense factor. Requirements vary by lender and program." ## Step 1: Not every deposit counts The statement shows everything that came in. The lender looks at what that money was. The FAQ notes that "Lenders commonly leave some deposits out, such as transfers between the borrower's own accounts, refunds and returned items." Borrowers often forget about these. Moving money from savings into checking feels like a deposit, but it isn't new income, and counting it would count the same money twice. A refund from a supplier is money coming back, not money earned. Which deposits a lender counts is the lender's call. See [excluding transfers and refunds](https://statementready.net/guides/excluding-transfers-refunds-bank-statement-income). ## Step 2: The total is averaged over the whole window The counted deposits are averaged over the look-back period, often 12 or 24 months. A borrower thinking about their best months will picture a higher number than the average of all of them. A slow season or a weak quarter pulls the average down. The FAQ adds that "Underwriters often look at the trend across the window, not only the average, and may ask for an explanation when income drops or swings." If the borrower's recent months are lower than earlier ones, explain that the lender may ask about it. See [12 vs 24 month bank statement loans](https://statementready.net/guides/12-vs-24-month-bank-statement-loans) and [declining income](https://statementready.net/guides/declining-income-bank-statement-loans). ## Step 3: The borrower's share of the business "On business statements, lenders commonly multiply income by the borrower's ownership share." A borrower who owns half of the business is typically credited with half of the income figure, even if they handle all the banking. See [ownership percentage](https://statementready.net/guides/ownership-percentage-bank-statement-income). ## Step 4: The expense factor This is usually the biggest surprise. Business deposits aren't profit: the business pays for supplies, staff, rent and everything else out of them. The FAQ defines the expense factor as "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. Requirements vary by lender and program." Borrowers sometimes push back here, especially if their real expenses are low. That's a question for the lender's program, which may allow a CPA letter or P&L. See the [expense factor guide](https://statementready.net/guides/bank-statement-loan-expense-factor). ## A sample worked example *Sample figures, for illustration only. They are not a lender rule, a default or a typical result. Use the numbers from your lender's program.* - Total deposits on the statements over 12 months: $240,000 - Deposits the lender doesn't count in this sample (a transfer from the borrower's own savings and supplier refunds): $24,000 - Counted deposits: $216,000, which averages $18,000 a month - Ownership share in this sample: 50% - Expense factor in this sample: 40% Income figure: $18,000 × 50% × (1 − 40%) = $5,400 a month. The borrower deposited an average of $20,000 a month. The income figure in this sample is $5,400. Every step has a reason, and walking through them in order is usually what turns "that's wrong" into "that makes sense." ## Tips for the conversation 1. **Explain it before you show the number.** A borrower who understands the steps first takes the result much better. 2. **Use their own statements.** Point to the transfer from savings or the refund that won't count. 3. **Separate what you know from what the lender decides.** You can explain the method; the lender sets the factor and decides what counts. 4. **Ask about anything unusual now.** Large one-time deposits and slow months are easier to explain early. 5. **Don't promise a figure.** Lenders set their own guidelines; confirm with the lender. ## Where StatementReady fits StatementReady builds the worksheet that shows each step, so you can walk the borrower through it with the figures in front of you. From the [StatementReady FAQ](https://statementready.net/faq): > "StatementReady's worksheet does exactly that: average counted deposits × ownership % × (1 − expense factor)." > "StatementReady excludes matched internal transfers, refunds, tax refunds and returned items automatically, and you can override any item. Deposits that look like wages or payroll, Social Security, SSI, pension, rent or child support aren't counted by default either, and you can count any of them back in the Review queue." > "You enter the factor from your lender's program on the loan file." > "StatementReady's worksheet shows deposits month by month so you can see the trend before you submit." > "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](https://statementready.net). First 2 loan files free, no card required. [Pricing](https://statementready.net/pricing) ## FAQ **Why is my bank statement income lower than my deposits?** Because the income figure is built in steps: some deposits aren't counted, the rest are averaged over the window, the borrower's ownership share is applied, and an expense factor sets part aside as business expenses. **Can the expense factor be lowered?** Some programs base it on a CPA letter or P&L instead of a fixed percentage. Which options exist is up to the lender's program. Lenders set their own guidelines; confirm with the lender. **Do transfers between my own accounts count as income?** Lenders commonly leave out transfers between the borrower's own accounts, because the money was already counted where it came from. Requirements vary by lender and program. **Does StatementReady decide the income figure?** No. It builds the worksheet from the months, ownership % and expense factor you enter. You and your lender make the final call on what counts as income. ## Sources (checked 2026-10-23) *Product statements are quoted from the live pages on the date checked.* 1. StatementReady FAQ: https://statementready.net/faq 2. StatementReady Pricing: https://statementready.net/pricing ## Related guides - [Bank statement income calculator](https://statementready.net/guides/bank-statement-income-calculator) - [Expense factor on bank statement loans](https://statementready.net/guides/bank-statement-loan-expense-factor) - [Excluding transfers and refunds](https://statementready.net/guides/excluding-transfers-refunds-bank-statement-income) - [Ownership percentage on bank statement income](https://statementready.net/guides/ownership-percentage-bank-statement-income) For shorter answers, see the [StatementReady FAQ](https://statementready.net/faq). --- © Varaxon Technologies LLC d/b/a StatementReady. Lender and program names are trademarks of their owners. 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