Self-employed borrowers don’t usually get stuck because of a bad credit risk. They’re getting held up because their income doesn’t show up the way a standard loan checklist expects it to.
Maybe they have strong revenue but heavy write-offs. Maybe their deposits look great, but tax returns don’t help. Or maybe they’re paid like a contractor, and their income is obvious to anyone who’s ever read a 1099, but the loan still hits friction.
This is exactly why 1099 loans, bank statement loans, and P&L loans matter for mortgage brokers and loan officers. Not as exceptions, but as real non-QM options built around how self-employed borrowers earn.
Below is a breakdown of what each one is best for, how to choose the right fit, and how to prevent the deal from stalling out in conditions.
The Real Difference Between 1099, Bank Statement, and Profit and Loss Loans
These three programs all help with self-employed income, but they prove income in completely different ways:
1099 loans: rely on 1099 income history and consistency
Bank Statement loans: rely on deposits and cash flow over time (often 12 or 24 months)
P&L loans: rely on a profit and loss statement that lays out revenue and expense
For brokers, the advantage isn’t just having more choices. It’s being able to pick the option that makes the income story easiest to support.
When 1099 Loans Make the Most Sense
A 1099-only loan can be a great fit when your borrower is a true independent contractor and has steady earnings, but their tax returns don’t do them any favors.
This comes up a lot with borrowers who:
- Take a lot of deductions
- Run expenses through the business
- Don’t want to hand over a stack of traditional documents
The win here is simplicity. You’re qualifying based on what their income history shows through the 1099s, instead of trying to force the deal through a full-doc setup.
Best borrower fit:
- Independent contractors
- Gig workers and freelancers
- Commission-based borrowers paid via 1099
If the borrower has consistent 1099 history, the file can feel a lot more straightforward from the start.
When Bank Statement Loans Are the Right Move
Bank statement loans are usually the best choice when the borrower’s real income is obvious in their deposits, even if they don’t show it that way on their taxes.
Instead of relying on returns, income is supported by 12 to24 months of personal or business bank statements, and the focus is on deposit patterns and overall cash flow.
This works well for borrowers who:
- Have multiple income streams
- Get paid unevenly month to month
- Run a lot of revenue through the business
Best borrower fit:
- Business owners with regular deposits (even if amounts fluctuate)
- Borrowers with high cash flow but heavy write-offs
- Self-employed borrowers whose income looks stronger on statements than on paper returns
From a broker standpoint, these files tend to move best when deposits are consistent and easy to explain without a long backstory.
When P&L Loans Are the Best Fit
P&L loans are a strong option when bank statements are harder to read, but the business itself is stable and profitable.
A good profit and loss statement can bring structure to the income story and keep the underwrite focused, especially when the borrower has a lot of transfers, business expenses, or uneven deposits.
This is one of those programs where prep matters. A clean P&L can make everything easier, and a messy one slows the file down fast.
Best borrower fit:
- Borrowers with “busy” business bank statements
- Borrowers with irregular deposit timing
- Borrowers whose income needs clearer support than deposits alone show
If the P&L is prepared accurately (and ideally backed by someone credible like a CPA), the income story is usually easier to defend.
Comparing the Three Options
Here’s a side-by-side way to think about it:
1099 = earnings history
Bank statements = deposit patterns
P&L = business performance
What Underwriters Usually Focus On
Non-QM underwriting still comes down to one thing: does the income make sense and does it look stable?
1099 loans
- Income consistency across 1099 history
- Whether income is stable or dropping
Bank Statement loans
- Deposit consistency across thefull statement timeline
- Whether deposits support the income used
- Overall account behavior (not just one or two good months)
P&L loans
- How reasonable the revenue and expenses look
- Whether the net income is realistic for that business type
- Whether the numbers look stable and sustainable
If the income story is obvious without a lot of explaining, underwriting usually stays calmer.
Common Mistakes That Slow These Files Down
Most problems come from the same issue: the documentation and the story don’t match.
1099 loan mistakes:
- Income drops year over year with no explanation
- Missing details or incomplete documentation
Bank statement loan mistakes:
- Deposits don’t support the income figure being used
- Too many unidentified transfers with no notes
- Big swings between months with no upfront explanation
P&L loan mistakes
- The P&L looks rushed or inconsistent
- Expenses don’t make sense for the business type
- Borrower can’t explain why net income suddenly changed
If something is going to raise a question, it’s better to address it in the submission package instead of waiting for underwriting to catch it.
How to Position These Options with Borrowers
Borrowers hear “Non-QM” and start making assumptions.
Your best move is to keep it simple and confident:
“We’re still verifying income. We’re just using a differentmethod that matches how you get paid.”
Then explain the path in one line:
1099 loan: “We use your 1099 income history.”
Bank statement loan: “We use deposits to confirm cash flow.”
P&L loan: “We use a profit and loss statement to document income.”
When borrowers understand what they’re providing and why, you’ll get fewer delays.
Why Having All 3 Options Helps Brokers Win More Deals
Self-employed deals don’t fall apart because of pricing most of the time.
They fall apart because the borrower doesn’t fit the standard documentation box.
When you know how to choose between 1099 loans, bank statement loans, and P&L loans, you can:
- Rescue borrowers who got stuck in a full-doc dead end
- Give cleaner options instead of forcing a workaround
- Shorten the process by picking the right documentation strategy upfront
That’s what separates brokers who “offer non-QM” from brokers who truly know how to structure self-employed files.
Common Questions: 1099 vs Bank Statement vs P&L Loans
How do I know when a 1099 loan is better than a bank statement loan?
If the borrower has solid 1099 history and the income is steady, 1099 loans are usually the simpler route. If deposits tell a stronger story than the 1099s do, bank statement loans are often the better fit.
What causes the most conditions on bank statement loans?
Submitting statements where deposits don’t match the income figure you’re using, especially if the borrower has a lot of transfers and you don’t label them. Underwriters need to see a pattern they can follow.
Are P&L loans mainly for borrowers who can’t qualify another way?
No. They’re useful when the P&L tells a more accurate story than bank statements do, especially for businesses with uneven cash flow or heavy expenses that don’t show up clearly in deposits.
What makes a profit and loss loan file appear “clean” to underwriting?
A P&L that looks believable for the business type, matches the borrower’s real activity, and doesn’t raise questions about inflated income.
What if a borrower has both 1099 income and business income?
That’s common. The move is picking whichever documentation method supports the strongest, most consistent income picture. Sometimes the borrower “can” do multiple options, but the best file is usually the simplest one.
Which option works best for borrowers with big write-offs?
Often 1099 loans or bank statement loans, since they can reduce the damage ofwrite-offs to qualifying income compared to a traditional tax return approach.
Final Takeaway for Brokers
If you’re choosing between 1099 loans, Bank Statement loans, and P&L loans, don’t make it complicated.
Pick the program that tells the borrower’s income story with the least explaining and the most consistency.
And if you want to dig deeper, you can review Lendz guidelines on the 1099-only, Bank Statement, and P&L-only non-QM options and keep them in your back pocket when a self-employed deal starts getting tricky.
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