Great question! The short answer is yes,. However, it’s not necessarily that black and white. When a lender is trying to calculate your debt-to-income (DTI) ratio, they are going to consider a couple of things:
Every financial institution has their own credit policy and risk appetite, so it’s worth shopping around. A “no” at one place might be a “yes” at another. Establishing a good credit history will do a lot to tip the scales in your favor.
At the end of the day, if your expenses make your net income too low to qualify for a loan, manipulating the picture on your tax return is not in your best interest. It will be more advantageous in the long-run to take advantages of the tax breaks available to you than to sign-on to a loan you can’t pay back and risk jeopardizing your business assets in the process.
It’s worth noting that qualifying for a loan is not the same as qualifying for a good loan. Odds are, if you have to exclude business write-offs just to get in the door, the only loans you’ll be able to get will have high interest rates and steep penalties.
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Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.