Why It’s So Hard for the Self-Employed to Get Capital When They Write Everything Off
Being self-employed feels like freedom; however, that feeling often changes the moment you try to get money to grow your business. Many small business owners are shocked when a bank or lender suddenly says “declined,” even though they work hard, bring in sales, and pay their bills on time.
One major reason this happens is very simple:
You write everything off.
From a tax point of view, writing off expenses is smart because it lowers your taxable income and can save you thousands of dollars a year. However, there is a catch. Lenders do not look at your finances the same way your tax preparer does. Instead, they focus on your net income, not your gross sales, and that difference changes everything.
When you write off too much, your tax return can, unfortunately, make you look “broke” on paper. You may know you made good money; nevertheless, the lender only sees what you reported after expenses. As a result, if your net income is very low, the lender often thinks:
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You can’t afford a loan payment
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Your business may be struggling
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You are too high risk to approve
Because of this, many self-employed people hear the same line over and over:
“You don’t show enough income.”
Even if your bank account tells a very different story.
How Lenders Think
Most lenders use a simple question to guide their decision:
“If we give you this loan, can you realistically pay it back every month?”
To answer that question, they typically use:
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Tax returns – usually the last 1–2 years
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Bank statements – to check cash flow and deposits
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Debt-to-income ratio – to see how much debt you already have
Therefore, when your tax return shows very low income because of heavy write-offs, it hurts you in three big ways:
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Lower loan amount – or no approval at all
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Higher interest rate – because you appear risky
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Fewer options – since many banks won’t even consider you
The Write-Off Trap
Over time, the “write-off everything” mindset can slowly become a trap. For years, your main goal is to pay as little tax as possible. Then, one day, you suddenly want to:
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Buy a building
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Get a bigger line of credit
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Take a large working capital loan
At that moment, you realize your strategy has backfired. Yes, you saved on taxes; however, now your reported income is too low to qualify for the capital you need to grow. In other words, the very thing that helped you before is now holding your business back.
How to Become More Fundable
The good news is that you can improve this situation with a bit of planning and a few changes.
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Decide on your goal 1–2 years ahead.
If you know you will need funding, talk with your tax professional and choose to show more income on purpose. This may mean paying a little more in taxes now so you can qualify for more capital later.
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Keep clean, clear records.
Likewise, organized bank statements and business accounts make you look stronger to lenders and help them say “yes” more easily.
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Separate personal and business expenses.
In addition, avoid mixing everything together. When personal and business expenses are blended, your numbers become messy and weak in the eyes of a lender.
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Explore alternative lenders.
Finally, consider lenders who look more at bank statement deposits and revenue than only at net income. These options can be more flexible for self-employed business owners.
By balancing tax savings with future funding needs, you can gradually avoid the write-off trap. As a result, your business will not only look successful in real life, but it will also appear fundable on paper—and that is exactly what you need to unlock the capital to grow.
Please see our other article about this topic here
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