Cash Flow Analysis

The following self-employed income analysis worksheet and accompanying guidelines generally apply to individuals:
  • Who have 25% or greater interest in a business
  • Who are employed by family members
  • Who are paid commissions
  • Who own rental property
  • Who receive variable income, have reported on IRS Form 1099, or income that cannot otherwise be verified by an independent and knowable source

To estimate and analyze a borrower's cash flow situation, enter the required data below according to the calculations that appear on the borrower's tax returns. After all data is entered select "Calculate" to calculate results.

Borrower Name
Property Address

Form 1040 - Individual Income Tax Return
1. Total Income (line 22):
2. Wages, salary considered elsewhere (subtract the non-SEB W-2's included on line 7):-
3. Tax-Exempt Interest Income (line 8b):+
4. State and Local Tax Refunds (line 10):-
5. Nonrecurring Alimony Received (line 11):-
6. Negate Schedule D (Income) Loss (line 13):+/-
7. Pension and/or IRA Distributions (15a - 15b, 16a - 16b):+/-
8. Negate Schedule E (Income) Loss (line 17):+/-
9. Nonrecurring Unemployment Compensation (line 19):-
10. Social Security Benefit (20a - 20b):+/-
11. Nonrecurring Other (Income) Loss (line 21):+/-
12. Other:
Form 2106 - Employee Business Expenses
13. Total Expenses (lines 8a + 8b):-
14. Depreciation (on page 2 line 13 x .17 cents or line 28):+
Schedule B - Interest and Divident Income
15. Nonrecurring Interest Income (line 2):-
16. Nonrecurring Dividend Income (line 6):-
Schedule C - Profit or Loss from Business: Sole Proprietorship
17. Nonrecurring Other (Income) Loss/Expenses (line 6):+/-
18. Depletion (line 12):+
19. Depreciation (line 13):+
20. Meals and Entertainment Exclusion (line 24b):-
21. Business Use of Home (line 30):+
22. Amortization/Casualty Loss (on p.2 Part V):+
Schedule D - Capital Gains and Losses
23. Recurring Capital Gain/(Loss) (line 16):+/-
Form 4797 - Sales of Business Property
24. Recurring Capital Gain/(Loss) (line 12):+/-
Form 6252 - Installment Sale Income
25. Principal Payments Received:+
Schedule E - Supplemental Income and Losses
26. Gross Rents and Royalties Received (line 3):+
27. Total Expenses Before Depreciation (line 19):-
28. Amortization/Casualty Loss/Non-recurring Expenses (line 18):+
29. Insurance, Mortgage Interest, and Taxes included in PITI payment (Only if using the property's full PITI payment in qualifying ratios) (lines 9,12,16):+
Schedule F - Profit or Loss from Farming
30. Non-Tax Portion Ongoing Coop and CCC Payments (lines 5,6,7,8)+
31. Nonrecurring Other (Income) Loss (line 10):+/-
32. Depreciation (line 16):+
33. Amortization/Casualty Loss/Depletion (line 34):+
34. Business Use of Home (line 34):+

(Consider K-1 income only if the borrower can document ownership and access to income, the business has adequate liquidity to support withdrawal, and the business has positive sales and earnings trends.)
Partnership Schedule K-1 (Form 1065)
35. Ordinary Income (Loss) (line 1)+/-
36. Net Income (Loss) (lines 2,3):+/-
37. Guaranteed Payments to Partner (line 4):+
S Corporation Schedule K-1 (Form 1120s)
38. Ordinary Income (Loss) (line 1):+/-
39. Net Income (Loss) (lines 2,3):+/-
1040 Total: 

Whether or not additional income from a Partnership, S Corporation, or regular corporation is used to qualify an applicant, lenders may need to conduct an analysis of the business tax returns to ensure a consistent pattern of profitability. Any loss resulting from this analysis must be deducted from cash flow as it represents a drain on the borrower's income.

The following sources of income may be considered for qualification provided:
  • The borrower can document owership and access to income
  • The business has adequate liquidity to support withdrawal of earnings; and
  • The business has positive sales and earnings trends

Partnership - Form 1065
40. Passthrough (Income) Loss from Other Partnerships (line 4):+/-
41. Nonrecurring Other (Income) Loss (line 7):+/-
42. Depreciation (line 16c):+
43. Depletion (line 17):+
44. Amortization/Casualty Loss (line 20):+
45. Mortgage or Notes Payable in Less than 1 Year (line 16):-
46. Meals and Entertainment Exclusion (M-1, 4b):-
47. Subtotal:
48. Times individual percentage of ownership:%
49. Partnership Total (subtotal multiplied by % ownership):
S Corporation - Form 1120S
50. Nonrecurring Other (Income) Loss (line 5):+/-
51. Depreciation (line 14c):+
52. Depletion (line 15):+
53. Amortization/Casualty Loss (line 19):+
54. Mortgage or Notes Payable in Less than 1 Year (Sch. L - 17):-
55. Meals and Entertainment Exclusion (M-1, 3b):-
56. Subtotal:
57. Times individual percentage of ownership:%
58. S Corporation Total (subtotal multiplied by % ownership) :
Regular Corporation - Form 1120
59. Taxable Income (line 30):
60. Total Tax (line 31):-
61. Nonrecurring (Gains) Loss (line 9):+/-
62. Nonrecurring Other (Income) Loss (line 10):+/-
63. Depreciation (line 21b):+
64. Depletion (line 22):+
65. Amortization/Casualty Loss (line 26):+
66. Net Operating Loss and Special Deductions (line 29c):+
67. Mortgage or Notes Payable in Less than 1 Year (line 17):-
68. Meals and Entertainment Exclusion (M-1 c):-
69. Subtotal:
70. Times individual percentage of ownership:%
71. Subtotal Multipied by Ownership Percentage:
72. Less: Dividends Paid to Borrower (Sch. B 1040):-
73. Corporation Total :
Partnership, S Corporation, and Corporation Totals:
Grand Total:

Year-to-Date income from profit and loss statements may only be considered if it is consistent with the previous years' earnings. Allowable addbacks include depreciation, depletion and other non-cash expenses as identified above.
Year-to-Date Profit and Loss Statement
Salary/Draw to Individual
Net Profit X % of ownership
Total Allowable Addbacks X % of ownership
Year-to-Date Total
 Revised 1084-10/01

A lender may use a profit and loss statement (audited or unaudited) for a self-employed borrower's business to support its determination of the stability or continuance of the borrower's income. When examining the statement, allowable addbacks include depreciation, depletion and other non-cash expenses as identified above.