Don't have the documentaion you need for traditional business fiance?
Everyone hates paperwork. Especially when it’s holding you back from something really important like a small business loan. To a small business, securing a relatively small amount can make the world of difference. Being able to raise funds simply and quickly can be the difference between muddling along and being efficient. Getting finance can enable a small business to take on a new contract which could bring a plethora of opportunities as opposed to having to turn it down. However, getting traditional finance through a bank is far from easy. The days of simply signing on the dotted line are long gone. When it comes to banks, a small forest is apparently cut down to provide the paper every time a client needs to take out a loan. The solution is a low doc business loan.
However, the amount of documentation many banks require (even for a small loan), isn´t just a tedious hoop they make you jump through to receive the money. It’s also a tool the bank uses to filter out “qualified” and “unqualified” borrowers. While it’s understandable banks want to protect their money and safeguard their business from potential legal setbacks, excessive amounts of documentation required often makes it unnecessarily complicated to get a loan.
For most business loans, banks will require the normal legal paperwork related to the company, detailed accounting paperwork, a comprehensive business plan, and sometimes other legal or financial documents. The problem is: most small business owners are one-man-teams that don’t have time to spare.
For example, a self-employed freelance writer might delegate the accounting for their business to a few calculator clicks on a smartphone. The bank, however, might want to see a detailed accounting report of the last eight months of business operations.
Few small businesses start their journey with a solid well-written business plan. However, to get financing, many banks will require this sort of documentation. Taking a week off your daily business routine to put together a business plan to appease the bank is not optimal use of time; especially considering the millions of mounting tasks that come with running your own business.
Similarly, paying a professional accountant to put together basic accounting infrastructure for your self-owned business just to get the small business loan you have applied for is an added expense. It should be looked at as yet another hidden fee associated with the loan.
When a small business owner or a self-employed individual needs access to finance, but simply doesn’t have the documentation that the loan officer at the local bank is asking for, what can they do? Low doc business loans (or no doc loans) offer a fantastic opportunity for small businesses and those who are self-employed to gain access to needed capital.
Low doc loans are essentially the same as regular business loans. The key difference is they don´t required the same amount of financial statements, documents or other paperwork traditional loans require. In most cases, low doc business loans can be used for various business purposes to help small business owners expand their marketing reach, expand their business, or refinance their existing debt.
When looking for a low doc business loan, three options exist. Low doc loans are for when a business owner cannot provide business financial statements and tax returns for the previous two years. Lease doc loans are more for commercial property investors who want to use the income from the lease as proof of repayment of a loan.
Finally, no doc loans are for business owners that can't provide any proof of income. However, this type of low doc business loan also comes with higher interest rates due to the increased risk the lender is facing.
The most obvious benefit of low doc loans is they simplify the process of applying for a business loan. While you most likely will not be able to apply for a large loan in order to start up your dream company, most low doc loans are available to existing businesses.
In addition, the vast majority of low doc loans (or no doc loans) are unsecured loans. This means you do not have to provide the bank with any sort of security or collateral (resulting in fewer documents). Despite the fact low doc loans require no collateral and have limited documentation requirements, with the right research you should be able to find several lending agencies that offer low doc loans with competitive rates and terms.
Lastly, low doc loans can often be applied for over the phone or Internet, therefore further reducing the amount of time needed for the application process. If your business needs a quick loan to capitalize on an unprecedented or unforeseen business opportunity, low doc loans will very probably be the quickest option to help you get the funds, fast.
Always take the time to read the fine print with any loan you apply for. It literally pays to do your research. There are hundreds of lenders in Australia offering low doc loans. If the thought of spending hours on the Internet searching for lenders, or driving through town and stopping at every bank doesn’t appeal, Ebroker has a helpful online tool that will allow you to compare rates, terms and conditions of several different low doc business loans offered by several lenders.
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If you are considering a low doc loan for your business, then you may still have some questions regarding the process, what it is, and what to expect. We have some of the more commonly asked questions below.
A lot of lenders want to see clean and good standing credit history from borrowers before they are given any kind of loan. The requirements, however, will vary depending on the lender and financial institution you work with.
With most doc loans, the maximum borrowing amount is 80 percent of the property's purchase price. However, to avoid lender's mortgage insurance (LMI), you can typically only borrow up to 60 per cent maximum.
The amount that can be borrowed with a low doc business loan often depends on the lending criteria and maximum loan amounts of the lender or financial institution, so this can vary.
When you begin to compare and research low doc business loans, you want to consider the interest rate, loan fees, maximum LVR, loan amount, repayment schedule, the flexibility of the payment schedule, and what documents are required for the loan application.
Even though it is a low doc loan, a business owner will still need to provide financial information. Some lenders request that an income declaration is signed. This document verifies the current income of the business. Depending on the letter, you may also need to provide them with a letter from your business accountant, business activity statements, and bank account statements for income verification.
Many lenders will allow a business owner to switch to a full doc loan after paying on-time payments for a period of two years for their low doc business loan.
It can prove difficult for a business to qualify for a traditional loan when they have bad credit. However, some lenders are willing to offer these low doc business loan options to a borrower with less than perfect credit ratings. In these cases, the business owner must provide an explanation for the bad credit history to satisfy other criteria. They should also be prepared for a higher interest rate.
Whether you are a start-up, small business, or are self employed, a low doc business loan can prove beneficial for an entrepreneur. A traditional loan requires an extensive amount of documentation and paperwork before approval, including legal paperwork, income verification, financial statements, business plans, and more.
However, low doc loans make the process less complicated. They offer a more hassle-free option to those small businesses, self employed borrowers, and start-up businesses who can't provide the long list of documentation requested by different lenders for more traditional loan options.