How can “Add Backs” be used to increase your borrowing power?

As you are aware, your revenue minus expenses and/ or other costs will determine your profit. Some expenses can be added back for the purpose of increasing your borrowing power, due to the lender regarding some expenses to have no on going commitment or a 'book transactions'.  When the lender considers your ability to pay your loan over 20 - 30 years, some one off costs are added back to your profit as they are comfortable that you will not have this expense ongoing.  Using the "Add Back" strategy will increase your borrowing power.  Some examples of “Add Backs” are: 

 • Trust distributions: Discretionary trust distributions made to family members can sometimes (rarely) be added back to then increase your borrowing power. In most cases the lender will require a letter from your accountant to confirm the beneficiaries are not dependent on this distribution and could potentially turn it off, allowing for the trust to retain this income. 

• Depreciation: Lenders will allow you to add back items you have claimed depreciation for.  

• Additional superannuation: If you have made voluntary contributions to your super, some lenders will then consider allowing you to cease this contribution and retrospectively add it back to your profit.   

• Net Profit Before Tax: Retained profit inside your company can be considered to be added to your borrowing power. If there are multiple owners of the company, the lender will consider the percentage of ownership you hold, as the percentage of retain profit to be yours. This is rarely granted and would need to be enough retained profit to cover the portion of lending for the life of the loan. This would be unusual.

One off expenses: If you had a large one off expense, sometimes this can be added back. We may need an accountant letter to confirm this and it also depends on the item that was purchased. 

 • Interest expenses: If you have a loan through your business or investment loans, then lenders can consider adding this back to increasing your borrowing power. Equally, if you are paying yourself interest for a Directors loan, this can be added back also. 

 • Rental property expenses: for investment properties Depreciation. Your rental income is also assessed separately to your personal and company income as they hold different weightings.  If you are paying yourself rent for a property owned by an entity you control, you can add that rent back also. • Company car: Lenders will consider allowing some expenses associated with your company owned vehicle to be added back in as income.  All these strategies are considered when determining your borrowing power. 

Whilst we will provide you with your maximum limit, you may wish to consult your lawyer, accountant or other professional advice before taking on further lending.