If you don't have the extensive documentation most business loans require, you could opt for a low doc business loan. These loans can be secured or unsecured, and allow you to borrow the money you need for your business. Given that these loans are more risky for lenders, your interest rates could be higher compared to standard business loans.
What is a low doc business loan and how does it work?
The main point of difference between a standard and low doc business loan is that the latter doesn't require detailed documentation. Most business loans will require extensive documentation, including tax returns for 2 years, financial statements like your balance sheet, an income statement and a cash flow statement. You will also have to show proof of income. If your business is unable to provide this, you could opt for a low doc business loan.
There are many reasons a business may be unable to provide all the financials for a traditional loan – you could have a startup, a new or small business, or you may be self-employed. Perhaps you have an established business but are unable to provide the detailed documentation the lender requires. On the other hand, your business could have a bad credit history, making you ineligible for other loans.
If your business doesn't have the paperwork to get a traditional business loan, you can still get one with a low doc business loan. You will be required to provide some documentation – but not what's usually required, like a business plan or detailed accounting data.
Because lenders accept a higher level of risk with low doc business loans, you may have to pay higher interest compared to a standard business loan. You will also need to sign a declaration confirming your current business income, and in some cases offer an asset as collateral for the loan.
What are the types of low doc business loans?
There are 3 types of low doc loans. These include:
Low doc loans. If you can't provide business financial statements and tax returns for 2 years, you could apply for a low doc loan.
Lease doc loans. These loans are designed for commercial property investors. You can use the income from your lease as proof you can afford your loan repayments.
No doc loans. If you can't provide any evidence of income whatsoever, you may need to apply for a no doc loan. The interest rate for these loans is much higher as the lender is taking a greater risk.
How much can I borrow with a low doc business loan?
This will depend on the lender, your risk profile and whether your loan is secured or unsecured.
Unsecured loans typically have lower borrowing amounts compared to secured loans. If you need to borrow more, you can use an asset as security.
With a secured loan, some lenders will allow you to borrow up to 80% of the value of your property. Depending on the type of security offered, this may be less.
Your risk profile and ability to repay the loan will also play a role in how much you can borrow. You may not be able to take out a large loan if your business is going to struggle to repay it. Lenders will only allow you to borrow what they feel you can comfortably repay.
What are the pros and cons of low doc business loans?
Pros
You can get a loan even with low documentation. Your documentary history doesn't stand in the way of getting a loan.
You can get a loan even with no or bad credit history. If your business doesn't have a credit history, or has a bad one, you can still get a loan.
Loan processing and approval times may be faster. With lower documentation required, lenders can work faster to approve your loan.
Cons
Interest rates tend to be higher. This makes the loan more expensive compared to other options.
Short loan terms. You may not be able to get a loan with a long loan term, especially compared to standard business loans. Short loan terms mean higher monthly repayments. You need to ensure your business can afford it.
Lower borrowing amounts. You may not be able to borrow as much as you could with a standard business loan, but this will depend on the lender and security offered.
How can I compare low doc business loans?
As with any loan, it's important to compare your options before applying. This will help you find a loan that's suitable for your circumstances. Here's what you need to consider:
Does the loan require security? Some low doc loans will require an asset as collateral. If you don't have an asset, look for an unsecured option. However, your borrowing amounts may be lower than for secured loans. With a secured loan, you should check if the lender will accept the type of security you're offering.
How much can I borrow? Each lender will have their maximum and minimum lending amounts. Does the lender offer how much you want? You should look for a loan that can provide the funds you need. If you borrow less, you'll have to apply for finance again.
How much will the loan cost? Compare interest rates across a number of loans to find the most affordable loan. Apart from interest, you should also consider fees and the comparison rate. Fees will increase the cost of your loan. Check the comparison rate, which includes interest and fees. This will give you an idea of how much the loan actually costs.
Can I afford the loan? Low doc loans come with higher interest rates, making this loan comparatively expensive. The question is, can your business afford the higher repayments? Check if your repayments fit comfortably within your budget.
What's the maximum LVR? If you're going for a secured low doc loan, check the loan-to-value ratio (LVR). Some lenders may allow you to borrow up to 80% of the value of the secured property, while others may offer less.
What documents are required? You should check what kind of documentation the lender requires and whether you can provide it.
Am I eligible? Do you meet the lender's minimum requirements to qualify for the loan? Your application could be rejected if you don't.
What's the repayment schedule and is it flexible? Can the repayment schedule be tailored to suit your business cash flow? Can you make free additional repayments to pay off the loan early, or will you face a penalty?
What should I avoid with low doc business loans?
Getting into debt you cannot afford. Check the cost of the loan and make sure you can afford it. You should be able to comfortably include your repayments in your budget. You should also avoid borrowing more than you need.
Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score, making it harder for you to get a loan in the future. Select a single loan that you're eligible for and that suits your needs, and apply with that lender.
Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. For secured loans, your asset could be repossessed if you default.
Is my business eligible for a low doc business loan?
A low doc business loan will still require some documentation. Most lenders will ask for an income declaration verifying your current business income. What kind of documentation you need will depend on the lender, but you may need:
An ABN
A GST-registered business
To be a citizen or permanent resident of Australia.
A letter from your accountant
A business activity statement
Bank account statements
How can I apply for a low doc business loan?
🤔 Work out what type of loan your business needs, how much you need to borrow and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table above.
✅ Select a lender. Click "Go to Site" to be directed to the lender's page, or "More Info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.
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Frequently asked questions
Yes. You can offer either residential or commercial property as collateral for your loan.
Yes, you should be able to. As a general rule, you should be able to get a full doc business loan once you've made your payments on time for a period of 2 years.
Yes, there are lenders who offer low doc loans for bad credit borrowers. These loans can be more expensive and you may have to satisfy a range of other criteria.
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