Pennsylvania P&L-Only Loans for Contractors & Skilled Trades: Close Without Tax Returns

Why P and L Only Financing Fits Pennsylvania’s Trades

Mortgage loan officers and brokers across Pennsylvania work daily with self employed clients whose tax returns do not reflect their real earning power. Contractors, remodelers, HVAC companies, roofers, electricians, plumbers, masons, solar installers, and specialty trades use write offs that lower taxable income but do not change the cash they collect. Profit and Loss only qualification solves this mismatch. Instead of building a file around line by line deductions and depreciation schedules, the lender analyzes a current year to date P and L—prepared by a qualified professional—paired with sensible reasonability checks. That lens mirrors how these businesses operate and allows qualified borrowers to close on owner occupied homes, second homes, and selected investment properties without handing over full tax returns.
For brokers, the story is about clarity and speed. A P and L based income read anchors underwriting to the borrower’s operating reality. When you collect the right attestations, show deposits that reconcile to sales, and present a concise business narrative, approvals come together without the friction of 1040s, K 1s, and complex add backs. The result is a product you can confidently position to tradespeople who are busy running jobs, not curating tax exhibits.

Program Basics Brokers Can Explain In One Call

A P and L only loan derives qualifying income from an independently prepared profit and loss statement, usually covering either the most recent twelve months or year to date with a sensible “true up” to the most recent full year. The document must be produced by a CPA, EA, or qualified third party accounting professional. Most programs ask the preparer to affirm that entries are consistent with the borrower’s books and that the statement was created from actual records, not projections. Underwriters then apply a margin or expense reasonability test—either by comparing historical ratios for the trade or by cross checking bank deposits and merchant summaries. The goal is to translate gross receipts and expenses into an income figure that supports the proposed housing payment after realistic business costs.
Expect guidelines that stack loan to value, credit score, reserves, and loan size to set the final approval box. Higher LTVs at a given score typically require stronger reserve positions and cleaner credit histories. Owner occupancy usually receives the most favorable treatment, with second homes and certain investment scenarios layered with additional reserves. Rate and term refinances are common for contractors consolidating debt or exiting hard money after a busy season; cash out refinances can fund shop buildouts, vehicles, or equipment purchases when the economics pencil.

Eligible Trades And Business Structures In Scope

The P and L path is built for owner operators and small firms. General contractors, kitchen and bath remodelers, roofers, siding installers, painters, drywall pros, waterproofers, HVAC, electrical, plumbing, masonry, concrete, solar, low voltage, landscaping, fencing, floor refinishing, and restoration are all in scope. Sole proprietors, single member LLCs, S corps, and partnerships qualify when the income is attributable to the borrower and the business is demonstrably active. Subcontractor heavy models are acceptable so long as labor costs are appropriately reflected as expenses on the P and L and the borrower’s margin remains consistent with trade norms.

Income Patterns And How To Translate Them Into A P and L

Trades in Pennsylvania experience predictable seasonality. Exterior heavy businesses—roofing, siding, masonry, concrete—see revenue bunching in spring through early fall, with weather buffers planned for winter. Interior trades—remodeling, electrical, plumbing, HVAC service, flooring—smooth the calendar with steady work and emergency calls. The P and L needs to capture these rhythms without inflating the average. If the borrower is mid boom due to storm work or a regional building cycle, explain the drivers and show a reasonable trailing average that accounts for one time spikes. Conversely, if the borrower’s YTD looks soft because materials spiked or weather delayed starts, document signed contracts, deposits on hand, and near term backlog so the income read does not understate earning power.
Key accounting mechanics matter. Progress billing and draws should appear as revenue when invoiced or collected depending on the borrower’s accounting method. Retainage should be separated to avoid double counting and to let the underwriter see the timing of future receipts. Materials pass through costs should be grouped as cost of goods sold and not mixed with overhead like trucks, insurance, or advertising. Warranty callbacks and service contracts can be recognized as recurring revenue streams if they appear consistently across months. The cleaner the categorization, the faster a credit team can map business reality to a qualifying income figure.

Building A Clean File From First Intake To CTC

Start every P and L scenario with a short discovery call. Ask what the business does, where the jobs are, how many crews operate, who handles books, and whether accounting is cash or accrual. Confirm years in business, licensing, and active insurance. Establish whether the borrower uses one bank for all deposits or spreads money across entities and personal accounts. The answers dictate your document plan. Your core package should include the professionally prepared P and L, a matching balance sheet or accountant letter that names the accounting method, twelve months of business bank statements or summaries sufficient to reconcile deposits, and merchant processor annual summaries if card revenue is material.
Reconciliation is not about auditing every penny. It is about showing directional alignment. If the P and L shows 900,000 in gross receipts, the bank statements and merchant reports should roughly track that trajectory after fees. Pull a few sample invoices and paid receipts to demonstrate that jobs flow through consistently. If the borrower operates with multiple DBAs or a holding entity, map the flow of funds on a one page diagram and label which accounts are included in the income read. A simple visualization can eliminate pages of conditions and let the reviewer focus on the coverage math.

Credit Profile Expectations Without Tax Returns

Credit overlays respect both business volatility and borrower behavior. Many programs publish minimum score tiers that open or close LTV bands. Tradeline depth and clean housing history show that the borrower can manage obligations even when job calendars get messy. Expect to document reserves in months of PITIA after close, with larger cushions as risk layers stack such as higher LTV, lower scores, or recent new debt. Prior housing events like a bankruptcy, foreclosure, or short sale can be accepted after seasoning; the P and L product exists because life and business are not always linear. Your job is to present compensating factors: low LTV, strong liquidity, long time in trade, or consistent crew employment that reduces execution risk.

Rate, Term, And Structure Choices That Tradespeople Prefer

Contractors prize payment stability during shoulder seasons and flexibility during growth spurts. A thirty year fixed offers the most predictable budget for owners content with their current home and shop. Hybrid ARMs can reduce the payment for five, seven, or ten years and match borrowers who expect stronger income after current contracts roll off or who plan to upgrade their home as the company scales. Interest only options during busy months allow reinvestment in inventory and labor without sacrificing cash on hand, especially when paired with disciplined reserves. Prepayment structures should match the business plan. Step down penalties are friendly to borrowers who anticipate refinancing once equipment debt is consolidated and pricing improves; longer protections may unlock the best coupons for buyers committed to a long hold.

Pennsylvania Location Notes For Local SEO And Underwriting

Pennsylvania’s regions shape trade calendars. Philadelphia and its collar counties run hot on interior remodels and rowhome rehabs, with permit timelines that require schedule padding. Center City and river wards present parking and material staging constraints that should be acknowledged in the borrower’s business narrative. Pittsburgh’s hillsides and older housing stock drive foundation, masonry, and retaining wall work; winter affects exterior schedules but interior demand stays steady across city neighborhoods and suburbs like Mt. Lebanon and Monroeville. The Lehigh Valley and Reading corridor benefit from distribution and manufacturing growth that supports mixed residential and light commercial contracts. Harrisburg, York, and Lancaster pull steady renovation demand and steady HVAC and plumbing service work due to a wide mix of property ages. Erie’s lake effect winters compress exterior calendars, so roofers and concrete crews stack spring and fall, while interior trades fill winters with kitchens, baths, and service contracts. State College and the Scranton Wilkes Barre region add predictable bursts around university and medical system activity that improve service call volume year round.
Bring these nuances into your underwriting memo. A roofer in Bucks County with a strong spring backlog and a book of winter attic insulation work has a more resilient cash flow than the same roofer without winter diversification. An electrical contractor in Allegheny County who pairs panel upgrades with EV charger installs can show growing demand that outlasts a transient construction cycle. Local context helps credit teams accept a P and L that looks different month to month yet produces reliable annual income.

Estimating Income Reasonably For Common Job Types

Turn real job mechanics into understandable income. Kitchen and bath remodelers often bill deposits on contract, progress draws at cabinet delivery and rough in completion, and a final upon punch list. Show that pattern in the P and L with cost of goods tied to materials, and margin captured in labor. Roof tear offs and replacements have weather contingencies; demonstrate scheduling buffers in winter and how emergency tarping and repair service keep revenue trickling when snow hits. HVAC operators can show a stable floor through maintenance plans and shoulder season tune ups in addition to summer change outs. Solar installers and electricians should separate equipment costs and rebates from labor so margin consistency is visible. Plumbers can present emergency service premiums in winter and spring thaw periods, creating predictable spikes that justify a higher monthly average.
One off large jobs are common. To avoid overstatement, document whether revenue will recur. If a general contractor just finished a six figure historic rehab, articulate whether the pipeline includes two similar projects or whether the upcoming year will return to a base of smaller kitchens and baths. Underwriters reward candor paired with evidence of booked work and referrals.

How To Defend The P and L To Credit Teams

A convincing narrative is short and precise. Start with a two paragraph summary: what the business does, where it operates, crew count, who keeps the books, and accounting method. Follow with a single page that lists year to date revenue, cost of goods, gross margin, overhead line items, and net income. Next, attach evidence that reduces uncertainty: a backlog or work in progress list with contract amounts and start dates, vendor statements that show material purchases consistent with the revenue pace, and three to five sample invoices with paid receipts that match bank entries. You are not proving every dollar. You are proving the pattern is stable and that the borrower knows their numbers.
If the credit team questions margins, explain labor strategy in plain terms. Many contractors scale with subcontractors rather than payroll. That can make gross margin look higher while overhead stays lean. Other firms bring labor in house, which lowers apparent gross margin while increasing payroll overhead. Neither approach is inherently risky when jobs are priced correctly and the owner has repeatable processes. Translate that truth in simple language and tie it to the P and L categories so the reviewer sees why variance does not equal volatility.

Collateral And Appraisal Readiness For Contractor Borrowers

Tradespeople often own homes with functional improvements. Outbuildings, oversized garages, sheds with power, and gated yards are common. These features can add value but may challenge comps in rural or semi rural markets. Prepare the appraisal by listing functional features without hype, and provide a map of similar properties where possible. If the property includes an accessory unit or workspace that is not permitted as habitable area, be transparent. Value can still be supported as utility rather than living area. Insurance notes should reflect tools, trailers, and material storage, with clear statements about whether business property is stored at the residence. These details keep collateral questions from overshadowing the income case.

Common Hurdles And Practical Workarounds

Cash based operators with thin deposit trails can still qualify when invoices, point of sale reports, and signed receipts tie back to a P and L prepared from books, not memory. Encourage weekly cash deposits during busy months to convert revenue into auditable entries. Multiple DBAs and commingled accounts benefit from a mapping sheet that shows which accounts feed the P and L. Rapid growth can outpace last year’s performance; handle it by presenting month over month charts and explaining drivers like a new crew, a channel partnership, or a regional storm event. Thin credit files respond well to compensating factors: stronger reserves, lower LTV, or a co borrower with deeper tradelines. Outstanding receivables and retainage need simple tracking and an explanation of average collection times so the underwriter sees liquidity is adequate between draws.
Another hurdle is over documentation. A P and L only loan is not a tax return loan in disguise. Do not flood the file with 1040s that invite unrelated questions. Provide exactly what the program needs: professional P and L, reasonability evidence, and a concise narrative. If a question can be answered with a one page letter from the accountant about accounting method or revenue recognition, use that tool instead of assembling a binder of unnecessary exhibits.

Compliance And Accuracy Without Overcomplicating The File

The accountant’s role is to prepare or attest to the P and L. The letter should state credentials, relationship to the borrower, time period covered, and the basis of preparation. It should not over promise or assert that the P and L is audited. The borrower’s recordkeeping should be consistent: separate business accounts, clean invoice numbering, and predictable reconciliation. Maintain transparency about draws the owner takes from the business. Misrepresentation risk drops when the story is simple, and lenders appreciate files that stick to facts while still advocating for the client. If the underwriter requests added support, supplement with bank summaries, merchant processor reports, or a month by month revenue and expense table that ties to the P and L totals.

Packaging Tips That Shorten Underwriting Cycles

A tight package shares a few traits. It opens with a one page business snapshot, includes a professionally formatted P and L with clear categories, and provides a short manager’s note that highlights seasonality and backlog. A monthly revenue and expense table for the covered period can clarify seasonality at a glance. Proof of business existence and years in operation—license, formation documents, or insurance declarations—belongs near the front. Simple managerial footnotes explain any unusual swings, such as material price spikes or one time equipment purchases. A photo set of the shop, vans, and two current jobs makes the business real to a reviewer who has never walked a site. None of this is fluff. It is persuasive context that accelerates approvals.

Internal Links To Keep Prospects Moving

Guide readers to the next step. Route scenarios to the Quick Quote form for fast intake. Use the Bank Statements and P and L page for product specifics and qualifying logic. If an investor file arises for a borrower who also holds rentals, educate with the DSCR page. Strengthen brand credibility by linking to the homepage using anchors such as Non QM Loans and Non QM Lender. These pathways keep the borrower on site and reduce friction between discovery and disclosures.

Broker Talk Tracks That Convert Contractor Leads

Handle discovery with empathy for how tradespeople work. Reframe the conversation as cash flow qualification instead of tax return hurdles. Set expectations on who will prepare the P and L and whether you will use a trailing twelve month or year to date read. Offer side by side scenarios with and without an interest only window so the borrower sees how payment timing aligns with busy seasons. Explain reserves in plain dollars, not just months, so owners can plan around real winter carry and spring material deposits. End each call with a clear doc list and a date for the next milestone; momentum is everything when crews are on ladders and phones are ringing.
When you follow this script, you present as a partner who understands the rhythms of contracting in Pennsylvania and can guide the borrower through a process tailored to their business reality. That trust converts to applications and to clean, defensible approvals.

FAQ Angles You Can Address Preemptively

Can my bookkeeper prepare the P and L if a CPA reviews it. Yes if the lender accepts a preparer plus reviewer structure and the reviewer signs the attestation. What if my gross is strong but materials spiked this year. The P and L should show the spike as cost of goods and you can provide vendor statements to prove it; underwriters focus on sustainability of margin, not one month anomalies. Do I need to change how I take draws from the business. No, but the P and L should show draws consistently and your reserves after closing must remain adequate. Can I qualify if I subcontract most labor. Yes; the P and L will reflect subcontractor expenses and your margin must be stable. How do receivables and retainage affect the income average. They show up as timing differences; provide a WIP or AR aging so the reviewer knows cash flow between draws is healthy.