Below we answer many of the common questions relating to low doc and no doc business loans, including, “what is the difference between a low doc and no doc loan?” and “how do low doc/no doc loans work?”.
You may wish to read: The Definitive Guide – How Does Private Lending Work?
What is a low doc business loan?
‘Low doc’ is an abbreviation for ‘low documentation’. A low doc business loan therefore is one that you can apply for without needing to provide all the paperwork that a bank or second tier lender usually requires.
For example, you don’t need to provide proof of your taxable income or business financial statements for the past few years like you would for a standard business loan.
What is the difference between a low doc business loan and no doc business loan?
‘No doc’ is an abbreviation for ‘no documentation’. A ‘no doc’ loan doesn’t require you to provide any documentation at all, whereas ‘low doc’ finance requires minimal paperwork.
It’s important to understand that it can be more difficult to be approved for a ‘no doc’ loan. In addition, even if you are approved, you’ll pay a higher interest rate and higher fees to compensate the lender for the increased risk.
Who uses low doc business loans or no doc business loans in Australia?
Low doc loans are a viable option if you’re an entrepreneur just starting up your business or if you’re already self-employed but you have a short operating history.
The only paperwork that you generally need to provide for low doc finance applications are:
- Your Australian Business Number (ABN).
- GST registration
- Proof of Australian citizenship of permanent residency.
- Evidence of your ability to make your loan repayments. For example, a letter from your accountant supporting your application, or any business activity statements (BAS) or bank statements that you are able to provide.
Applying for a low doc loan is much less time-consuming than applying for a standard business loan with a bank. Banks have very strict lending criteria. You would normally be expected to provide the following paperwork with a standard bank business finance application:
- Audited business balance sheets, income statements and tax returns for at least the past two financial years.
- A detailed business plan with revenue forecasts.
- Copies of any sales contracts or agreements that you have in place.
- Details of assets to be used as collateral security for the finance.
Many businesses simply aren’t in a business to do this.
What can I use a low doc commercial loan or no doc commercial loan for?
Low doc commercial loans can be used for a wide range of business purposes, including:
- Increasing your working capital or boosting your cash flow.
- Buying business stock, equipment, machinery or vehicles.
- Paying GST or other taxes.
- Employing staff.
- Buying a competing business.
- Renovating your business premises.
In fact, they can be used for any commercial purpose!
How much can I borrow with a low doc business loan or no doc business loan?
The policies of different lenders vary. However, in general, how much you can borrow depends on your ability to demonstrate the repayments you can afford. The more you can afford to repay, the more you can borrow.
What is the term of low doc business loans and no doc business loans?
They are normally fairly short term, ranging from 3 months to 5 years.
What are low doc business loan interest rates?
Interest rates on low doc loans are higher than standard business loans to reflect the higher risk to the lender. However, the interest rates are lower than those for no doc loans.
The interest rate depends on a range of factors, including:
- The term.
- Whether you have any business trading history.
- Your credit history (if you apply for the finance with a bank instead of a private lender).
- Whether you can provide any assets as security for the funds (also known as collateral security).
Where can I get low doc business finance or no doc business finance?
Low doc business finance is available from a range of lenders in Australia, including both banks and private lenders.
However, you will generally find it easier to gain approval from a private lender than a bank, due to the strict lending criteria you need to meet with banks. You will also usually get the funds you need faster from a private lender.
How do low doc business loans and no doc business loans from DFS work?
At DFS, we are private lending specialists. Private lending is an alternative option to bank finance. With private lending, you borrow funds from a non-bank third party via a contractual agreement. The third party could be a private individual or firm.
Both borrowers and lenders must adhere to the terms and conditions set out in the private loan contract, including repayment schedules and interest charges. At DFS, we can tailor low doc finance repayment schedules to meet the specific cash flow requirements of your business.
Private lending is legal and it is the fastest growing sector of the Australian lending market.
I’m self-employed, is a low doc business loan or no doc business loan a good option for me?
If you’re self-employed, low doc business finance may be the only viable option for you, especially if you’re just starting out. It could be the difference between you being able to start (or continue) your business or not.
Can I get a low doc business loan or no doc business loan if I have a bad credit history (or no credit history)?
Yes, but you would be more likely to have your application approved by a private lender than a bank if you have a bad (or no) credit rating. Banks are traditionally very risk-averse, and they are even more so since the recent Financial Services Royal Commission and the economic downturn caused by COVID-19.
At DFS, we don’t conduct credit checks as part of your private low doc loan application. Banks on the other hand will ALWAYS check your credit history as part of assessing your application. If you have a bad credit history, your application is likely to be declined, which will further damage your credit score.
Can I get an unsecured low doc business loan or no doc business loan?
Yes, provided you can demonstrate that you can make your repayments.
In some circumstances, we can get you approval with a letter from your accountant.
An unsecured low doc loan doesn’t require you to provide any assets as collateral security, as opposed to a secured loan which does. It’s important to understand that when you provide assets as collateral security for finance, the lender can repossess your asset and sell it to recoup your debt if you fail to make your repayments.
On the other hand, lenders of unsecured loans cannot repossess any of your assets. However, you will be charged a higher interest rate to compensate the lender for the increased risk.
Case study – Melbourne low doc business loan
Will is a budding young tech entrepreneur in Melbourne who had a great business idea but no credit history. He approached a few banks for the finance he needed, but quickly realised he couldn’t provide all the documents they needed.
Determined and undeterred, he found DFS online and approached us. We put him in touch with a one of our private lenders who could see his vision and wanted to help him exploit his business opportunity. Will quickly got the finds he needed and he’s on his way!
Case study – Sydney low doc business loan
Sarah and her friend Ashleigh started an small business selling a range of products online on Amazon. Sales were going well in the first few months, but they know that both their sales and profits could be so much better if they could just place a larger stock order and qualify for cheaper wholesale prices.
Unfortunately, they didn’t have enough business trading history to qualify for a standard business loan with a bank. So they turned to us at DFS instead. We quickly arranged low doc finance for them from one of our pool of private lenders.
They have since been able to qualify for a significant discount on their large stock order, and both sales and profits are growing steadily.
Case study – Brisbane low doc business loan
Dipak and his wife Sasha had a restaurant in a bad location in Brisbane a few years ago. There just wasn’t enough foot traffic in their location to make their restaurant viable and they were forced to close. Unfortunately, they also developed a bad credit history for their business during that time, despite their culinary talents. They made all their payments, but were often late, which damaged their credit rating.
They knew they could generate enough cash flow to run their own restaurant successfully if they could just find the right location. They then found the perfect spot on the Gold Coast. Unfortunately, their bank wasn’t prepared to lend them the money they needed to set up their new restaurant due to their credit history.
That’s when they contacted us. We quickly found them a private lender who gave them the funds they needed. They are now Gold Coast restauranteurs in a popular location for tourists.