What is a low-doc business loan?
Low-doc business loans, sometimes referred to as low-doc commercial loans, are a type of loan designed for businesses who are unable, or unwilling, to provide the financial statements or supporting documents required to access traditional business loans.
This includes things like a balance sheet, income statement, and cash flow statement.
They are most popular among sole traders and SMEs who have a relatively short trading history.
However, they aren’t strictly limited to these types of businesses. More established firms, who would prefer not to provide this documentation, can also apply for a low-doc business loan.
As the name suggests, low-doc loans still require you to provide some documentation in order to qualify. This usually includes things like bank statements in order to demonstrate proof of income.
It’s worth bearing in mind that low-doc lenders will still perform a credit check.
There are other forms of low-doc business finance, such as low-doc equipment finance and low-doc commercial property loans.
How about no-doc business loans?
No-doc business loans require no evidence of your business income or supporting documents.
To qualify for a no-doc business loan, you’ll need to secure the loan with an asset or property that is of higher value than the loan amount.
Although there’s no documentation, no-doc lenders will also perform a credit check before approving the loan.
No-doc commercial property loans are a popular form of commercial bridging loan, designed to provide short-term cash when there is a clear repayment plan, such as the sale of a property.
Applying for a low-doc business loan
It’s difficult to qualify for a low-doc business loan through a bank.
Westpac no longer offers low-doc business loans.
To qualify for a low-doc home loan though Commbank or ANZ, you’ll need to provide some ‘major documentation’, such as a recent tax return AND you’ll need to be a homeowner with sufficient equity to secure the loan.
Low-doc and no-doc business loans are most commonly accessed through non-bank, online lenders.
In this sense, applying for these types of loans is much the same as applying for a standard secured or unsecured business loan through these non-bank lenders.
The one major difference, of course, is in the documents you have to supply in the application process.
With less documents required to apply, the turnaround from online lenders can be even faster than their already fast standard business loans.
Online lenders continue to grow in popularity and they have now issued billions of dollars of finance to Australian SMEs. Australia’s largest online lender, Prospa, offers small business loans up to $150,000 with no requirement for financial statements.
Complete an application through Small Business Loans Australia and specify that you’re looking for a low-doc business loan to receive tailored loan offers from a panel of online lenders.
In order to qualify for a low-doc business loan, you’ll generally need to meet the following criteria:
- Have a valid ABN
- Business is GST-registered
- Australian citizen or permanent resident
- A credit score which meets the lender’s requirements
On application, you may also need to provide:
- A letter from your accountant
- Bank statements
- Business activity statements
The most crucial aspect of your application is demonstrating the ability to keep up with your repayment schedule and repay the loan in full. You may also be asked to sign an income declaration.
To qualify for a no-doc business loan, you’ll also need:
- An asset of greater value than the loan you’re seeking
Interest rates on low-doc business loans
You might already be familiar with the difference between fixed and variable rate loans.
A fixed interest rate loan ensures that the interest rate stays consistent throughout the loan’s duration.
A variable interest rate loan is one in which the interest applied to the remaining balance varies according to the official cash rate.
But, there is one other way that the repayment schedule can be calculated on a low-doc loan.
This is known as a factor rate.
A factor rate is expressed as a multiple of the loan. As an example, a factor rate could be 1.15. On a $100,000 loan, this means a total of $115,000 has to be repaid, plus any other associated fees.
Under a factor rate, the amount of interest you pay on a low-doc business loan is calculated purely on the initial loan amount. It makes it easier to understand how much you have to repay, but will prove more disadvantageous the longer the borrowing term.
On a general note, low-doc business loans are generally more expensive than standard business loans. Given the lender will know less about the financial performance of the borrower, and the risk increases, this makes perfect sense.
Low-doc and no-doc business loans can be used for virtually any business purpose.
If you’re wanting to:
Then know that this is generally always possible through low-doc business finance.
If you’re unsure whether or not you can borrow funds for your intended purpose, speak to the lender before you agree to a credit check.
Advantages of low-doc business loans
The primary advantages of a low-doc loan is exactly why most borrowers opt for this type of loan; it doesn’t require any major documentation to be supplied.
One of the knock-on advantages to this is the speed in which the loan can be disbursed. With less documentation to review, low-doc small business loans are generally processed fast. Consider that they are most commonly provided by online lenders, and you can naturally expect a much faster turnaround than with a bank anyway.
Lastly, many online lenders will provide low-doc business loans on an unsecured basis. Meaning you don’t have to risk losing your property, or a key asset, should you fail to meet the terms of the loan. Saying this, only take out a loan if you can be absolutely sure you can keep up with the repayment schedule.
Disadvantages of low-doc business loans
The main disadvantage of low-doc business loans is that they have higher interest rates due to their higher risk.
What’s more, no-doc business loans will also require an asset to be used as security. If you’re not a homeowner, or you don’t have an appropriate asset, you will not qualify for a no-doc business loan.
Rounding off the key information
Low-doc business loans are structured differently from lender-to-lender but, in general, you can say that they:
- Are more accessible through online lenders
- Generally have a lower value than standard business loans
- Will have higher interest rates than standard business loans
- Can be used for virtually any business purpose
- Are typically shorter-term, but can be up to five years
- Can be fixed or variable rate, and occasionally factor rate