Quick answer
A tax return showing a loss or low profit doesn't automatically stop you borrowing. Taxable profit is reduced by legitimate deductions such as depreciation, one-off costs and prepaid expenses, so it can understate the cash a business generates. Low doc lenders can look at bank statements, BAS turnover and an accountant's explanation of add-backs, or rely on property security instead of the profit figure.
Key points
- Taxable profit and cash flow are different numbers. Lenders know that.
- Add-backs such as depreciation and one-off costs can be explained by an accountant.
- Bank statements show the cash the business actually generates.
- A real, ongoing loss needs a different conversation from a paper loss.
Why can a healthy business show a loss on paper?
Your tax return is prepared to work out tax, not to show a lender what you can afford. Taxable profit is sales minus every deduction you’re entitled to claim, and some of those deductions don’t involve cash going out the door this year. Common examples:
- Depreciation on vehicles and equipment, including large write-offs in the year of purchase.
- One-off costs such as a major repair, a relocation or setting up a new site.
- Prepaid expenses claimed this year for next year’s benefit.
- Owner’s wages or super paid through a company, which reduce company profit but are income to you.
- Interest on debt that the new loan will refinance.
So a business can bank strong deposits every month and still lodge a return with a small profit or even a loss. That’s often perfectly legitimate. The challenge is that many banks’ credit rules start and finish with the taxable profit figure.
How do low doc lenders look past the number?
They ask a different question: how much cash does this business generate, and can it cover repayments? That can be answered in several ways.
| Approach | What the lender does | Evidence needed |
|---|---|---|
| Cash-flow view | Reads monthly deposits and regular costs from statements | 6+ months of business bank statements |
| Add-back view | Adds non-cash and one-off items back to profit | Return plus accountant’s add-back letter |
| Turnover view | Checks trading scale against reported sales | Lodged BAS |
| Security view | Relies mainly on property equity and a clear exit | Property details, loan purpose, repayment plan |
These aren’t loopholes. They’re different ways of answering the same question, and most low doc files use two or three together.
What should an add-back letter say?
If your accountant prepared the return, they’re the best person to explain it. A useful letter:
- States the taxable profit or loss.
- Lists each add-back, the amount, and why it doesn’t reflect ongoing costs.
- Gives the adjusted figure.
- Confirms whether anything unusual will recur next year.
Keep it to a page. A lender reading “net loss of $12,000, after depreciation of $48,000 on equipment purchased in the year” understands the picture instantly. More on this on our accountant’s letter page.
Illustrative example: equipment year, loss on paper
Illustrative only; not a real business.
An earthmoving contractor buys two machines during the year and claims large depreciation deductions. His company return shows a small loss. His bank statements show consistent monthly deposits from three regular builders, and he’s never missed a BAS.
He wants $150,000 to fund working capital for a bigger contract. His accountant writes a one-page add-back letter explaining the depreciation, and he provides twelve months of statements and the last four BAS. He also owns an investment property with equity. A lender can look at the adjusted cash position, or use the property as security, rather than stopping at the loss.
When is a loss a real problem?
It’s worth being honest here. Some businesses show a loss because they’re losing money. Signs include:
- deposits falling month after month;
- the account regularly overdrawn;
- tax and supplier debts growing;
- no clear reason the next year will be different.
Borrowing can still make sense if it funds a specific fix, such as refinancing expensive short-term debt or buying equipment that clearly lifts margins. But a lender will want to see the turnaround plan, not just the need. A real person will tell you plainly if more debt looks like the wrong tool.
How does the ATO view low profits?
The ATO publishes small business benchmarks that let businesses compare their performance with similar businesses in their industry. The ATO also says it uses benchmarks as one of the tools to identify businesses that may be avoiding their tax obligations. That’s a reminder that your return should reflect reality. For borrowing, the point is simply to present that reality clearly, with evidence beyond the one profit line.
Which route suits a loss-on-paper file?
- Unsecured or line of credit, typically $5,000 to $500,000, sized on turnover and bank statements. Strong statements help most. See bank statement business loans.
- Property-secured, from $20,000 to $5,000,000 by first mortgage, second mortgage or caveat. The equity takes the pressure off the profit figure. See property equity as evidence.
Not sure where you land? Run the substitute checker and tick “a tax return that shows a profit” as missing.
What questions should you expect on the first call?
A specialist looking at a loss-on-paper file will usually ask a handful of practical questions. Having the answers ready shortens the conversation:
- What drove the loss? Name the big items: equipment depreciation, a one-off repair, a move, stock written off.
- Will those items happen again next year? A one-off is very different from a recurring cost.
- What does a normal month look like? Your average deposits and regular outgoings from recent statements.
- What’s the money for, and how does it improve things? For example, new equipment that cuts subcontractor costs, or stock for a season that reliably sells through.
- Is there property that could secure the loan? It changes which lenders are in play.
None of this needs to be polished. A few honest sentences and the documents to back them up are what a lender wants.
Show us the whole picture
A loss on your return is a number that needs context. Give us the context in a short enquiry. There’s no credit check when you first enquire, your details aren’t pushed out to a list of lenders, and a specialist who understands add-backs will call you.
On the form, please be upfront that the last return shows a loss or low profit. It helps us approach a lender who looks at cash flow, not just the bottom line. See if you qualify.
Frequently asked questions
What is an add-back?
An expense on your return that doesn't reflect ongoing cash costs, such as depreciation, a one-off repair, interest on a loan being refinanced, or prepaid expenses. Lenders may add these back to profit to see what the business can afford.
Will a bank lend if my return shows a loss?
Many banks find it difficult, because their rules are built around taxable profit. Low doc and private lenders are generally more flexible about looking at cash flow and security instead.
Can I just show my bank statements instead?
Often, yes. For unsecured options sized on turnover and statements, the statements carry the file. The lender may still ask about the loss, so have a short explanation ready.
What if the business really is losing money?
Then more debt may not be the answer, unless it funds a clear turnaround. A specialist will tell you honestly whether finance makes sense.
Should I change how I do my tax to borrow more?
Tax decisions are for you and your registered tax agent. What we can do is present your real cash position clearly so the lender sees the whole picture.