Low Doc Business Loans

Low doc and no doc business loans are similar to traditional unsecured and secured business loans.

The main difference is that low doc (low documentation) and no doc (no documentation) business loans allow small businesses and self-employed borrowers to access vital cash flow when they cannot provide financial statements or supporting documentation that would be required for traditional business loan approval.

Low doc and no doc loans are mostly used by small businesses with a short operating history, and self-employed individuals. Importantly, they are used by borrowers who cannot provide the necessary documentation for standard business loan approval.

The three primary benefits are:

• Fast access to funding for small businesses
  

• They don’t require security or extensive supporting documentation
  

• Simplified application process — non-bank lenders will often allow you to apply online
  

Owning a small business isn’t always easy, and having fast and simple access to business funds can be the difference between growth and closure.

Low doc loans are used when you are unable to meet qualifying criteria for a standard business loan and cannot provide business financial statements and tax returns for the past two years.

No doc loans are used when you are unable to provide any evidence of your business income or supporting documents.

Low doc business loans are designed for business owners who have difficulty in meeting the strict approval criteria with their bank. This is why they are incredibly popular with new businesses and small businesses in Australia.

Small businesses benefit from the fast approval times offered by non-bank lenders — applying with these lenders requires minimal paperwork and provides access to finance which can then be used for a number of useful purposes.

This type of finance is often used by:

• Self-employed individuals
  

• New businesses
  

• Businesses with complex structures
  

• Entrepreneurs
  

• Small Businesses
  

There are no restrictions on how you can use a low doc or no doc business loan. The number of uses for low doc business finance is as varied as the businesses who apply.

You may wish to use funds to increase working capital, or purchase time-sensitive inventory or stock. Other popular uses include:

• Paying BAS or tax debt
  

• Buying equipment or machinery
  

• Balancing seasonal cash flow
  

• Employing new staff
  

• Renovating your offices
  

• Buying a competitor business
  

Interest rates on low doc business loans will vary between lenders. The actual rate applied to your loan will be dependent on a number of factors, including:

• The trading history of the business
  

• The reputation of the business with suppliers and customers
  

• The credit history of the business
  

• The length of the loan period
  

• The value of any deposits or security — if any — used on the loan
  

Similar to unsecured business loans, low doc and no doc lenders may apply a factor rate to your loan instead of an interest rate.

A factor rate is expressed as a multiple of the loan, which can make it more difficult to understand than an interest rate percentage — the amount of interest you pay on a low doc business loan will be calculated on the initial loan amount, not the ‘reducing balance’ — i.e. loan amortisation.

As interest rates and loan flexibility are assessed on the level of risk presented to a lender, low doc loans will have higher interest rates than standard business loans, and no doc loans will have higher interest rates than low doc loans.

Applying for a low doc or no doc business loan will be easiest through non-bank or specialist lenders. You may be asked to sign an income declaration, and you’ll still need to meet basic lender criteria and have:

• An ABN
  

• A GST-registered business
  

• Permanent Citizenship or Residency
  

The most important aspect of your application is proving your ability to meet your repayment obligations. For the majority of non-bank and specialist low doc finance lenders, you may also need to provide:

• A letter from your accountant
  

• Business Activity Statements
  

• Bank Account Statements
  

Applying for a low doc loan with your bank can be a time-consuming and stressful process — fast approval without needing to provide endless amounts of supporting documents is the main reason businesses apply for loans with non-bank lenders.

If you do choose to apply with your bank, you’ll need to supply extensive documentation about your business, such as:

• Your balance sheets for the past two or three years
  

• Details of any business equity or any existing debt finance
  

• Profit-and-loss statements for the past three financial years (provided by your accountant)
  

• Business revenue projections for the next 24 months
  

• A debtors and creditors report
  

• Copies of any significant contracts or sales agreements your business may rely on for continued revenue
  

• Your personal and business credit records
  

• Details of any assets you wish to use as security on the loan — such as vehicles and property
  

You may also need to provide:

• A business plan, showing your understanding of the market and how your business will compete with other, similar businesses to maintain a profit
  

• A detailed business case indicating how you will use the funds and how you plan to repay the loan
  

For the majority of self-employed individuals or small businesses, collating this much supporting documentation can be an arduous task.

Even if you are able to provide this documentation, there is no guarantee you will be approved by your bank, and if you require fast access to finance, the length of the process may make applying a waste of time.