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If you're applying for a business loan, you'll usually need to provide proof of income to demonstrate your capacity to repay the money you borrow. However, if you can't provide this proof – for example, if you're a startup with insufficient income history or if you're self-employed – you may need to consider a low doc business loan.
These loans allow you to access the business financing you need without providing extensive financial statements, but it can be difficult to get approval. Keep reading to find out how to maximise your chances of finding a loan.
Low doc business loans don't require the same level of financial statements and documentation as ordinary full doc business loans. This makes them a viable option for any business that can't provide the necessary tax returns and financial statements that are usually required to qualify for financing, such as:
However, because lenders accept a higher level of risk when they approve loans to low doc borrowers, this type of financing usually attracts higher interest rates than ordinary business loans. You'll also need to sign a declaration confirming your current business income to qualify for a loan, and offer an asset as collateral for the loan.
There are three types of low doc business loans to consider:
Lending criteria and maximum loan amounts vary between lenders. However, as a general rule most lenders will allow you to borrow up to 80% of the value of the property you offer as security for the loan.
In cases where your loan-to-value ratio (LVR) is below 65%, it may be possible to negotiate a reduced interest rate with your lender.
Remember to consider the following features when weighing up the pros and cons of different low doc business loans:
Just because you're applying for a low doc business loan doesn't mean that you won't be asked to provide any financial information. Most lenders will request you to sign an income declaration verifying your current business income. Depending on the lender, you may also need to provide:
You may be asked to provide business income forecasts that have been verified by your accountant, while you'll also need to provide real estate as security for your low doc loan.
Lenders will have their own criteria regarding the properties they will accept as security for your loan. For example, while non-specialised properties (such as offices or residential properties) are usually fine, other properties with reduced appeal to potential buyers (such as properties in remote rural areas) will commonly be rejected.
One key risk to be aware of with low doc business loans is having your application rejected. Since taking on low doc borrowers comes with a higher level of risk for the lender, many banks take a conservative approach to this type of financing. As a result, if you have bad credit, a security property in a high-risk location or a poorly prepared application, you may be rejected – which can in turn make it harder to access financing elsewhere.
As with any other type of loan, you should also take care not to borrow more than you can afford to repay. Remember, low doc business loans have higher interest rates than full doc loans, so make sure you don't get in over your head.
Yes. You can offer residential or commercial property as collateral for your loan.
Yes. As a general rule, lenders will allow you to switch to a full doc loan after you have made on-time repayments (and not missed any repayments) on your low doc business loan for a period of two years.
Yes. While it can be difficult to qualify for a loan, there are lenders willing to offer low doc business loans to borrowers with bad credit. However, you'll need to provide an explanation for your credit history and satisfy a range of other criteria.
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