What Is an Expense Ratio Letter on a Bank Statement Loan?

Short answer: An expense ratio letter is a signed statement from a licensed CPA, enrolled agent or qualifying tax preparer that certifies the percentage of your gross business deposits that goes to operating expenses. On a bank statement loan, lenders apply a default expense ratio, often 50 percent, to estimate your income. If your real expenses are lower, an expense ratio letter documents that lower figure, and because less is subtracted, more of your deposits count as qualifying income. It is optional, but it can meaningfully raise how much you qualify to borrow.

Self-employed borrowers using a bank statement loan run into the same surprise again and again: their business runs healthy deposits, but the lender only counts half of them. That is the expense ratio at work. Here is what the letter is, why it matters, and when it is worth getting one.

What is an expense ratio on a bank statement loan?

The expense ratio is the percentage of your gross business deposits that a lender assumes goes to running the business before any of it counts as personal income. On business bank statements, the common default is 50 percent, meaning the lender treats half of your deposits as costs and half as income you can qualify on. Real expense ratios vary widely, from roughly 10 percent for a low-overhead service business to 70 percent or more for a business with heavy materials, payroll or a physical location. The default exists because the lender has no way to know your actual costs from the deposits alone, so it applies a conservative assumption.

What does an expense ratio letter do?

An expense ratio letter replaces the lender's assumption with a documented figure from a tax professional. Instead of applying a flat 50 percent, the underwriter uses the ratio your CPA certifies. The effect on qualifying income is direct. Take a business account averaging $50,000 a month in deposits. At the default 50 percent ratio, qualifying income is $25,000 a month. If your CPA certifies a 30 percent expense ratio, the lender subtracts only 30 percent, and qualifying income rises to $35,000 a month. That $10,000 difference flows straight into the debt-to-income math that sizes your loan, so it can move the approved amount by a large margin. Our guide on how much you can borrow on a bank statement loan shows how that income figure becomes a loan amount.

Who can write an expense ratio letter?

Lenders want the letter from a licensed, independent third party, typically a Certified Public Accountant or an enrolled agent, and some programs accept a licensed tax preparer who prepares your returns. The key is that the person is a credentialed tax professional who is not you and who has visibility into your business finances. Many lenders also require the CPA or preparer to have handled your taxes or books for a minimum period, so the letter reflects a real working knowledge of your expenses rather than a one-time favor.

How low can the expense ratio go?

Most programs set a floor, and a common minimum is around 10 percent, because no ongoing business truly has zero costs. Your CPA cannot simply write the number that helps you most; the certified ratio has to reflect your actual expenses, and the professional is putting their license behind the figure. If your books show a true operating expense ratio of 20 percent, that is what the letter should state. The value is realistic, defensible, and still far below the 50 percent default that would otherwise apply.

Is an expense ratio letter required?

No. A bank statement loan works without one, using the lender's default ratio. The letter is an option you reach for when your actual expenses are clearly below that default and the extra qualifying income matters for your target loan amount. If your business genuinely runs at or above a 50 percent expense ratio, the letter will not help and is not worth the cost. If you run lean, it can be one of the highest-value documents in your file. This is also where a clean set of books pays off, because a CPA can only certify a low ratio if the numbers support it. Keeping tidy records and being able to produce a clear profit and loss statement makes that certification straightforward.

Expense ratio letter vs P&L loan

An expense ratio letter and a P&L loan solve the same problem in different ways. The letter adjusts a bank statement loan by certifying a single expense percentage, while a P&L loan replaces the deposit-averaging method entirely and qualifies you on a full profit and loss statement your CPA prepares. If your expenses are only modestly below 50 percent, the letter is simpler and cheaper. If your financials are complex or your true income is best shown through a complete statement, a full P&L may serve better. Our comparison of a P&L loan versus a bank statement loan walks through when each one wins.

How do I prepare for the expense ratio conversation?

Start by knowing your own numbers. Convert your business bank statements to a spreadsheet, total the deposits over the 12 or 24 month window your lender will review, and calculate your real expenses as a share of those deposits. When you can hand your CPA a clean deposit total and an accurate expense figure, the letter is quick to produce and easy to defend. You can convert your bank statements to Excel in a couple of minutes to run that math, and the bank statement loan requirements for self-employed borrowers post covers the rest of the documents that go with the letter. Lenders spread the same statements to check the ratio, so organized, converted records move the whole file faster.

Last updated July 2026. Guidelines vary by lender and are not a commitment to lend.