Low-Doc Business Loans

In many ways low doc and no doc business loans are similar to traditional secured and unsecured business loans. The main difference is in the documents required as part of the application process.

In summary, low doc and no doc business loans in Australia:

• Require limited supporting documents for approval
• Can be accessed more easily from non-bank lenders
• May have a factor rate applied instead of a percentage rate
• Will have higher interest rates and fees than a standard business loan
• Can be used for almost any business purpose

‘Working capital/smoothing over cashflow' is the most popular business loan purpose according to recent business lending data. But there are generally no restrictions on how you can use a low doc or no doc business loan. Common purposes include:

• Purchasing stock
• Paying BAS or tax owed
• Buying equipment or machinery
• Balancing seasonal cash flow
• Employing new staff
• Renovating/fitting out your offices
• Buying a competitor business

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 (e.g. 1.2, in which case the loan amount would be multiplied by 1.2 to arrive at the total amount to be repaid).

If a factor rate is applied by the lender, the amount of interest you pay on a low doc business loan will be calculated based on the initial loan amount. In contrast, with a standard business loan interest is calculated based on the current balance which reduces over time.

Applying for a low doc or no doc business loan is generally 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
• Citizenship or permanent 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
• 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
• 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.