When your latest year is lower than the year before, the reason and your current trading position become the most important part of the assessment. A decline doesn’t automatically stop an application, but it usually shifts the lender toward the more conservative figure, and toward wanting to understand why.
A worked example
| Year | Adjusted business income |
|---|---|
| FY1 | $120,000 |
| FY2 | $85,000 |
Lender assessment can become more conservative once the latest year has declined, the lower figure can become the controlling number rather than an average of the two years. This is the opposite pattern to a growth scenario, and it’s a genuinely common one worth planning for rather than being surprised by.
What lenders may ask for
- Why did profit fall, was it a one-off expense, a lost contract, or an ongoing decline?
- Has the business restructured, or is it the same operation under the same ownership?
- Is current trading (BAS, recent bank statements, management accounts) showing recovery?
- Were there unusual, genuinely non-recurring costs in the lower year?
Being able to explain a decline clearly, with evidence, is usually more useful than hoping it goes unnoticed, lenders will see both years’ financials regardless, so the explanation is part of the application either way.
What to prepare
- Both years’ financials
- Current BAS or bank statements showing your present trading position
- A short written explanation of the decline and what’s changed since
Next step: see the full self-employed decline scenario in the Self-Employed guide and the Scenario Lens, then talk with KartikKumar about how your specific figures and explanation are likely to be assessed.