Not Business Revenue: What does that mean?
Revenue is not equal, especially for your business. Lenders considering small business loans such as bank statement loans often look in detail at where sales came from in your business statements. They are looking to see if the revenue is from the operation of your business, or not.
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4 Main types of true Business Revenue that lenders accept.
1. Income from Sales to Customers and Vendors:
Revenue from the normal sales your business has is the most preferred and accepted income any business can have. Your business model is succeeding and can repay debt.
2. Income from Affiliate Partners.
Some businesses have affiliate relationships. Affiliate partners secure customers on behalf of another business. This income may come from the affiliate partners rather than those customers directly, but it is still valid receipts.
3. Money from Collections
Many businesses have delinquent accounts they collect on. Collection receipts are valid business income, even if they are from charged off accounts.
4. Money from the sale of business assets
When a business sells hard assets such as commercial real estate, business equipment or vehicles, it is considered business revenue and should be counted that way by lenders.
This includes soft assets such as proprietary software, intellectual property and patents. Any of these can have great value and be sold for significant amounts. When this happens, it is counted towards business sales and included in the annual income of the business.
Windfall from court decisions or judgements
Monies from court decisions or judgements is a grey area when it comes to lenders considering this as revenue for a business. Most will give this credit as true income from the business. Money from successful court litigation is considered monies that are truly owed to the business.
However, it is still a large one time event that will not be repeated. That makes it considerably different than money from sales which does constantly repeat, such as from a retail store.
What isn’t Business Revenue?
Transfers between business accounts or from other accounts
Transfers between accounts are not revenue for the business. The lender analyzes them to answer the following questions:
Was the transfer from another business account of the same business? If so, what has been the recent cash flow of that other account?
Savings Accounts:
Savings account transfers into a business checking account are not business income received by a business.
Personal Accounts:
Transfers from any personal account into a business accounts will not be considered business sales. Claims that they are must be documented and proven to the lender.
Business Loan Proceeds
Loan Proceeds are NOT considered business income. Money that comes from lenders cannot be added to the gross receipts of the business. It did not come from sales, so it is not business income.
Tax Refunds
Tax refunds are not part of business sales. Money back from the IRS is usually from taxes paid for previous sales, so the income has already been counted.
Rebates
Rebates is money a business gets back from an old purchase. It shows in the deposit section of a business checking account statement. Money had to be spent in the first place to get the rebate or refund and will not be counted.
FAQ on Business Vs Non Business revenue.
What is non business revenue ?
It is money that is not earned by the business from sales, sale of business assets, collections or the regular operation of the business.
Why is the lender not counting some of my business income?
The lender has decided that some of the money coming into your business is not consistent, or not the type they can count on to repay their loan, so they don’t count it.
How can the lender decline my business by not counting revenue that I earned?
The lender can count, or not count funds they see coming into your business for any reason. Their credit standards and criteria is not subject to law. It is based on their internal guidelines.
Conclusion
Some of your income may not be accepted as business income and may even be deducted resulting in a denial of your loan request.
Consider other lending programs when much of your revenues may be disputed as true business income. Contact us to match your business to programs that are not as strict in this type of review.
Author Biography: Will Sanio, Owner of SCF Funding, dba SmallBusinessLoansDepot.com, has a Bachelor of Science Degree in Business Administration with a concentration in Finance from the University of Tennessee, Knoxville.
Over 20 Years experience including 10 Years with Wells Fargo, formerly Wachovia Bank and First Atlanta Bank. Specializing in Traditional and Alternative lending.
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