Why salary and dividends may not tell the full story
Directors often keep personal drawings tax-efficient or leave money in the business for working capital. A lender using only salary and dividends can therefore produce a borrowing figure that feels disconnected from company performance.
That does not mean every pound in the company can be treated as personal income; the correct assessment depends on the accounts and lender.
Which profit figure might be used?
Policies vary. A lender may consider a director’s share of net profit after corporation tax, salary plus a share of profit, or retained profit accumulated in the business. Terms that sound similar can produce different calculations.
- Applicant’s percentage shareholding
- Latest and previous years’ profit
- Corporation tax position
- Cash held versus accounting profit
- Business commitments and sustainability
What evidence can be requested?
Finalised accounts are central, but an underwriter may also want business bank statements, an accountant’s certificate or an explanation of recent changes. Complex group structures or multiple companies can require more detail.
Presenting the case clearly
The aim is to match the accounts to a lender’s exact definition before an application is made. Holly can discuss the figures with you and, where appropriate, your accountant so the chosen approach is understood from the start.
Frequently asked questions
Can all retained profit be used?+
No. Eligibility and calculation vary, and lenders consider sustainability, shareholding, business liabilities and their own definition of income.
Does cash in the bank equal retained profit?+
Not necessarily. Cash and accounting profit are different measures, and an underwriter may review both.
Will lenders average company profit?+
Some average two years, some use the latest year and others use the lower figure where income has reduced.