No doc commercial loans
How to apply for a commercial loan without proof of income.
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If you're self-employed and find it difficult to meet the normal lending criteria for a commercial loan, a no doc commercial loan could be a viable option.
Commercial lending does not fall under the ambit of the National Consumer Credit Protection Act (NCCP), giving lenders the freedom to extend credit to people who might not otherwise meet normal lending criteria. No doc loans provide people with the opportunity to access commercial funding without providing normal proof of income under special circumstances.
Find out if a no doc commercial loan could be a good option for you.
Understanding no doc commercial loans
How does the loan work?
No doc commercial loans are rarely, if ever, offered by Australia's big banks. The good news for borrowers is that there are several independent non-bank lenders who are willing to look beyond normal lending criteria and extend finance to people who might not otherwise be eligible.
No doc loans are sometimes referred to as asset lending, because the loan is solely secured by an asset of suitable value rather than on the financial circumstances of the borrower. No doc loans can be a good fit for self-employed people who are not in a position to provide personal and company tax returns as proof of income.
A no doc loan may sound too good to be true, but it does come at a price. The lender is taking an enormous risk in extending credit without being completely satisfied that the borrower has the ability to service the loan repayments. In order to justify this risk, the lender will apply interest rates several points higher than standard commercial interest rates at the time.
For this reason, no doc commercial loans are best suited to people who can fully justify the premium price they will pay for the credit, by way of the opportunity cost of not having finance at the time. A no doc commercial loan could be best suited to a business owner looking to take advantage of a time-sensitive opportunity, such as purchasing stock at a significant discount, rather than for debt consolidation or normal business cash flow purposes.
Will the commercial loan really be "no doc"?
A "no doc" loan will still have a minimal amount of paperwork, but does not require full disclosure of the applicant's financial circumstances, along with the full audited financial documentation of the business that would otherwise be required during a commercial loan application.
When applying for a no doc commercial loan, the applicant will be required to sign a declaration to confirm their awareness of and ability to service the loan repayments. Other specific criteria will vary from lender to lender, but could include:
- Declaration of income. Some no doc lenders will require the borrower to state their income, while others won't. A signed statement of income could attract an interest rate discount.
- Deposit. Some lenders will require evidence of a deposit in the form of cash savings.
- Identification. It is a mandatory requirement to have 100 points of ID for commercial loan applicants and guarantors, if applicable.
- Letter from accountant. Some lenders will require a signed letter from the borrower's accountant to verify the borrower's ability to service the loan.
The difference between no doc and low doc commercial loans
No doc and low doc commercial loans give people access to funds without having to satisfy normal commercial lending criteria. When applying for a no doc loan, borrowers must simply provide a guarantee that they are aware of the loan repayments and have the ability to service them, while offering a suitably valued asset as security for the loan. Borrowers pay a premium interest rate in exchange for not providing any proof of their income or ability to service the loan.
A low doc commercial loan still does not require the usual full financial documentation of a standard commercial loan, but does require the borrower to declare their income and provide some, albeit limited, supporting information. The supporting information required will vary from lender to lender, but could include business activity statements, a letter from the borrower's accountant, or business trading accounts to verify the business' income.
Low doc business loans will still attract a higher interest rate than standard commercial loans, but will not attract the premium interest rates applicable to a no doc loan.
Typical loan terms for a no doc loan
How much can I borrow?
Since there are no standard borrowing terms for no doc commercial loans, there is no set amount that a borrower can expect to be able to access. As a guide, however, the maximum loan amount for a no doc loan would be 65% of the value of the property offered as security for the loan.
This amount could change based on the type of property offered as security, with residential property likely to attract a higher loan amount than less favourable property like specialised commercial.
The term of a no doc loan can vary, with some lenders offering a maximum 12-month loan term and other lenders comfortable offering between 12 months and 5 years.
A small number of alternative lenders could offer no doc commercial loans for as long as 25 years, however this may actually involve a series of shorter term loans with a reapproval process occurring between loan terms, with a new set of fees and charges applied each time.
No doc commercial loans attract higher interest rates than the majority of standard commercial loans, with the difference in interest rate tending to be 3–4%. As with all commercial lending, interest rates will depend on individual circumstances, including the amount of the business loan, the value and type of property given as security, and the purpose of the loan.
If the borrower has a poor credit history, the interest rate is likely to be even higher than it would otherwise be for a no doc loan.
Commercial no doc loans are secured by an appropriate asset with sufficient value to justify the lender's risk in extending credit to a borrower without having proof of their ability to repay the loan. Residential property in major locations or close to capital cities is always the most desirable security for a loan, followed by less desirable residential property and general use commercial properties including offices, retail buildings and warehouses.
Specialised or custom-built commercial properties are unlikely to be accepted as security for a no doc commercial loan. Similarly, properties in remote locations, in poor condition, or otherwise not considered readily saleable are unlikely to be accepted.
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