The expense factor is the negotiation

A bank statement loan does not know what your business costs to run. It cannot: there are no tax returns in the file and nobody is auditing your expenses. So the lender assumes them. It takes your total deposits, multiplies by your ownership share, and then subtracts a fixed percentage before calling anything income. That percentage is the expense factor.

Two lenders can quote you within an eighth of a point of each other and be twenty points apart on the factor. On the same deposits that gap is worth far more than the rate difference, and it decides qualification rather than merely cost.

What actually moves it

• Industry. A service business with almost no cost of goods is treated differently from one that buys inventory. A hairdresser renting a chair and a caterer buying food are not the same file.
• A letter from a licensed preparer stating your actual expense ratio. This is the single most effective document, and most borrowers never send one because nobody asks them for it.
• Personal versus business accounts. Personal-account programmes often apply no factor at all, on the reasoning that business costs never touched that account.
• Ownership share, which is not the factor but is applied in the same breath and is worth documenting cleanly.

The arithmetic, plainly

Take twelve months of deposits. Strip out transfers between your own accounts, refunds, loans and anything that is not earnings. Multiply by your ownership percentage. Divide by twelve. Then multiply by one minus the expense factor. What is left is your qualifying income, and everything a lender says about you afterwards is a ratio built on top of it.

What to ask for

1. Ask what the factor is before you ask what the rate is.
2. Ask what would move it, in writing.
3. Ask whether a personal-account programme is available to you, and what it costs in rate to use one.
4. Ask what happens to the factor if your preparer signs a letter. Then get the letter.

None of this is exotic. It is just the part of the conversation that a rate sheet does not have a column for.