For self-employed borrowers, the employment verification process can be a bit different than those who receive a paycheck. Self-employed borrowers don’t receive the paycheck every month from an employer. Because of this, you have to submit more documentation to prove that their business has a healthy growth. While people on paycheck only submit bank statement and credit report, those who are self-employed need to provide documentation like income tax returns, and much other documentation.
Most lenders would prefer to extend loans to self-employed people who have a Certified Public Accountant (CPA) that take care of their finances. If you have an accountant, they will call your accountant to verify your income and tax returns. They will ask your accountant many questions to verify your income such as how likely your business will continue to be successful. They will ask your accountant to explain about the business profits and all the properties of your business. If you have any other income source, they will also ask your accountant to provide information on it.
It will be best if you establish profits and loss statements in your record keeping to keep track of the expenses and income. Many lenders accept profits and loss statements as income proof. They will check your profits and loss statements and make sure that they are same as the business bank statements.
If you don’t have an accountant that manage your finance, the lender may require you to submit your business license. The business license will be used as a proof of your employment. You have to fill in all the necessary information in the IRS form 4506-T and submit it to the lender.
The IRS form 4506-T is a Request for Transcript Tax Return. With the form, the lender can obtain a copy of your tax return from the Internal Revenue Service (IRS). They will review the tax transcripts they obtain from the IRS and compared it to the tax returns information you provide on the application to make sure that they are precise.
The income tax return gives the lender a full picture of the revenue your business is receiving. Usually, people who are self-employed will have more expenses. They will review your expenses to determine which one is considered as expenses and which one is not considered as expenses. The lender will require you to provide the tax returns of the past 2 years.
It is important that you don’t lie in your application because the lender will carry out a thorough inspection on every employment information that you submit. If you tell lies, your loan will be denied. Even if the lender did not find out, it won’t be right for you to apply for a loan that you don’t have the ability to pay back.