Can a bank ask for tax returns?

Can a bank ask for tax returns?

Banks have become more cautious than ever since the mortgage crisis, so they are no longer able to simply ask if a person has the ability to repay a loan. There are many people able to provide enough information without resorting to the bank asking for tax returns, and their loans will tend to be processed quickly. For those who do not fit into this particular category, the bank is allowed to request tax returns under certain circumstances.

Most people work for an employer, and their pay stub from a weekly check will be enough evidence to show sufficient income. This is what the bank needs to decide whether or not a loan can be granted, and those who can provide it have an easy path to getting their loan examined for possible approval by the bank’s lending division.

If a pay stub is not available, a federal form W-2 is generally acceptable for the purpose of a bank loan application. It gives the amount of income for the year, and the bank is capable of using that information to decide whether or not a person will be able to afford the loan payments.

Those who do not work for a company often have a more difficult path to follow, and the bank may decide that they need to see their tax returns. They will not ask the person to provide them as they are not certified. Instead, the bank will send a 4506-transcripts request to the IRS so that they can get copies of the person’s returns for the past few years. Their goal is to help a client seeking a loan to prove they do have the income to repay any loan that is granted.

It is seldom that any bank wishes to lengthen the loan application process, but it can be necessary. For those who are dependent upon income not covered by a regular employer, it could be a step they must get used to if they are going to borrow money.

Posted in 4506-Transcripts, Financial, IRS and Tax Transcripts | Tagged , , , , | Leave a comment

Do business loans look at personal credit?

Do business loans look at personal credit?

When you’re ready to apply for a business loan, there are many factors you need to be aware of. Applying for a business loan is easy but getting the loan approved can be difficult. While there are plenty of options when it comes to finding a lending institution, it can be hard to know the best way to get a loan.

Business loan applications start by asking for basic information about your business location and your personal details. The lender will want your profit and loss statements, tax records and other documents related to your company. Here’s the part that may be surprising to a lot of small businesses, banks do look into your own personal credit file when you apply for a loan.

It’s common for financial institutions to do a credit file inquiry after you apply for a loan. After all, the lender needs to know whether you’ll be responsible and pay the loan back. Your credit score will play an important factor in the decision to underwrite your business loan. Credit scores reflect your willingness and attitude when it comes to paying back the loan. Your credit history may also be checked in terms of available credit, inquiries, payment history and public records.

New business owners who don’t have the ability to show their profitability will need to have good to excellent credit scores to be considered for a business loan. If your current credit score is low, then now is the time to improve it. Credit scores can be raised by paying on time, having a low debt to available credit ratio and disputing anything that’s wrong or old. To dispute a credit entry contact the credit reporting company that’s showing the error. Each of the three credit bureaus has easy dispute processes to help correct credit records.

Posted in 4506-Transcripts, business taxes, IRS and Tax Transcripts, Small Business Loans | Tagged , , , , , | Leave a comment

Why do mortgage lenders need tax transcripts?

Why do mortgage lenders need tax transcripts?

When you apply for a mortgage, you’ll be asked for information by the lender. The mortgage company is taking a risk every time they loan money for a home purchase, and they need to ensure that they verify all the information that’s provided to them. While most people provide accurate and honest information on their applications, there are sometimes fraudsters.

The loan company will ask for a copy of your W-2’s or paystubs as well as a copy of your tax transcripts. The tax transcripts are from the Internal Revenue Service (IRS) and provide basic information about your income the previous year. The mortgage company will cross-check the information on the tax transcript with the other income information you provide them with.

In order to release a tax transcript to your mortgage company, you need to fill out form 4506-T. When you submit this form to the IRS, you’re giving them permission to send your private tax information to the underwriters at the mortgage company. The IRS will send the transcript directly to the lender, so there’s no question of its authenticity.

When you fill out the 4506-T form, enter your tax identification number or social security number and your name. In the address field, enter the mortgage company’s address so it’s mailed directly to them. Make sure you sign the 4506-T form before sending it, or the IRS will send it back to you. The IRS never releases any tax information without your signed consent unless required to by the law. The 4506-T form is the only form you need to request transcripts whether you file a 1040 or 1040EZ.

Posted in 4506-Transcripts, Financial, IRS and Tax Transcripts | Tagged , , , | Leave a comment

Can banks access tax records?

Can banks access tax records?

When you apply for a loan from a bank, you should expect them to ask you for verification of your income. Before the economic crash of 2008, it was easy to get a loan simply by self-certifying your income. Those days are long gone, and every bank is required to get verified income information from their loan applicants.

You will be asked for copies of your paystubs and W-2s. Sometimes banks will ask for a copy of your tax returns, especially if you’re self-employed. To ensure that all of your information is correct your loan underwriter may further request a copy of your tax records. This is perfectly normal, so don’t panic if you are asked to provide this.

Banks need to cross-check certain information on your application and W-2s, and they can do this by looking at your tax transcripts. If everything matches up, then the loan process will move forward. If not, the loan officer will ask you more questions about any discrepancies. Self-employment income is almost always a trigger for tax record requests, so don’t be surprised if this happens to you as a business owner.

You’ll need to fill out form 4506-T from the Internal Revenue Service (IRS) to release your tax transcripts to the bank. Your tax transcripts is a verified method to show what your income was for a specific year. It comes directly from the IRS, so there’s no question that it’s true information.

Make sure to enter the bank’s address and not yours on the form, so that it’s sent directly to the loan officer. Make sure to sign it and request the right year that the bank is asking for. The tax transcripts are available back to three years. In case you didn’t file a return, the transcript will provide this information too.

Posted in 4506-Transcripts, business taxes, Financial | Tagged , , , | Leave a comment

4 Factors banks use to approve your business loan

4 Factors banks use to approve your business loan

You run your own business and find yourself in need of money for operating costs, inventory and payroll. A business loan may be the solution to giving your business the best chance to make it. Here are a few things that banks look for when deciding whether to approve or deny your loan.

1) Credit Score

Your credit score is one of the most significant indicators that you are a financially responsible person. Banks want to know they can trust you to pay your bills, vendors, and lenders on time. A credit score of 700 or more shows you’ll know how to properly manage any money they lend you.

2) Collateral

Banks want to protect themselves in case your business struggles, leaving you unable to pay back the loan. Should you default, they’ll try to recoup their investment by taking ownership of your vehicles, property and personal assets.

3) Business Size and Age

A brand new business will have a hard time getting a loan, but having a large business can improve your odds. With too small of a following, the bank will see it unlikely that you’ll make enough money to cover your expenses and pay them back. Your chances of an approved loan increase if you run an established business with a large customer base.

4) Your Knowledge and Experience

Are you opening your own business based on your decade of experience in the field? Or, are you risking it all on a hobby? Banks want to know that you have the industry knowledge needed for success before handing over any cash.

Be Prepared

When you approach a bank for a loan, be fully prepared with any documents you might need. Your first impression tells them a lot about how you’ll run your business. Showcase your expertise, have the numbers for your credit and collateral, and detail your plan to pay back the loan on time.

 

Posted in 4506-Transcripts, Financial, Small Business Loans | Tagged , , , , | Leave a comment