Net Income
Net Income is the final amount a business earns after deducting all expenses, interest, depreciation, and tax. Lenders use Net Income to assess the strength of applications for Business Loans, Working Capital Loans, and Equipment Finance. It shows true profitability and repayment capability. Related terms: Profit, Revenue, OPEX. Relevant hubs: Business Owners Finance Hub.
Why Net Income Matters
Net Income is one of the strongest indicators of a business’s financial stability. Higher Net Income increases borrowing capacity and improves the likelihood of approval. If Net Income is consistently tight or negative, it can also be a warning sign that shows up in common cashflow mistakes lenders pay close attention to.
- Shows true business profitability
- Determines loan servicing ability
- Used in borrowing capacity calculations
- Important for financial reporting and tax planning
- Indicates long-term business sustainability
How Net Income Is Calculated
- Revenue – Total Expenses – Tax = Net Income
- Adjustments may include depreciation and interest
- Used in annual tax returns and financial statements
- Lenders cross-check figures using BAS and bank statements
- Common for lenders to examine multiple years of Net Income
Strong Net Income improves approval strength for Business Lines of Credit and cashflow-based products like Invoice Finance. You can see how Net Income feeds into a full cashflow toolkit in our Business Cashflow System (WCL + LOC + Invoice) guide.
Official reference: business.gov.au