If your business wants finance fast, without the hassle of preparing extensive documentation, there’s an alternative — the low doc business loan.
Key points about low doc business loans in Australia
- Low doc business loans require minimal documentation compared to traditional business loans
- Higher interest rates apply for the convenience and added risk to the lender
- Low doc loan terms range from six months to five years
- The most common reason businesses use a low doc loan is to buy vehicles or transport, according to Lend proprietary data
- Low doc business loans be secured or unsecured
What is a low doc business loan?
A low doc (low documentation) business loan requires less financial documentation than a standard small business loan for which you often need to provide financial statements or paperwork to show your business income, assets and liabilities. There’s also the option of a no doc (no documentation) business loan which requires no proof of income documentation.
Low doc or no doc loans present a higher risk to the lender, so interest rates will be higher than a standard business loan.
A low doc or no doc business loan can be secured or unsecured. It’s typically used by small businesses with a short operating history, including startups, sole traders and self-employed individuals or those who have very little chance of securing bank finance.
Low doc business loans in Australia are typically offered by specialist lenders willing to take on the risk. Some banks also offer low doc loans, although at a much higher cost.
Who’s eligible for a low doc business loan?
Most Australian businesses and self-employed individuals can qualify for a low doc loan if they meet the minimum eligibility criteria, including:
- Your business must be GST-registered
- Active ABN or ACN
- Proof you can repay the loan in full
- A good credit score — the minimum credit score for business lending is around 400.
Pro tip: If your business has been trading for at least six months, there’s a good chance you can access a low doc business loan as long as you meet the lender’s basic criteria, the most important of which is your ability to make repayments.
How much can you borrow with a low doc business loan?
You can borrow between $5,000 and $1 million with a low doc business loan. Your borrowing capacity will depend on your business' overall credit profile and the type of loan you apply for. Here are some median loan amounts requested for different types of asset finance, according to Lend proprietary data.
- Low doc chattel mortgage: $45,000
- Low doc finance lease: $100,000
- Low doc asset finance (unspecified): $90,000
Low doc loan factor rates
Unsecured low doc business loans may charge a factor rate rather than an annual interest rate. A factor rate is expressed as a multiple of the loan, for example, 1.15 times the loan balance. While you’ll still make regular repayments over the course of the loan, your interest will be calculated on the initial loan principal rather than the reducing balance. This means the amount of interest you pay won’t change, even if you make extra repayments. Use our factor rate to APR calculator to convert your factor rate into an annual percentage rate.
Low doc loan terms & repayments
You’ll also need to consider the structure of your loan, including:
The term of the loan: Most low doc unsecured loans have terms of between six months and five years.
If your interest rate is fixed or variable: This will impact the amount you pay, whether or not you have the flexibility to make early repayments, and how exposed you are to interest rate fluctuations.
Your repayment schedule: You can make equal monthly payments or variable payments to match your cashflow.
Be aware that some lenders may impose restrictive conditions to compensate them for the additional risk of a low doc loan. For example, you could be prevented from offering credit terms to your customers or dealing with customers with a poor payment history. It's important to consider the potential impact of these conditions when evaluating loan products.
The type and structure of your loan can have a major impact on your financial circumstances, and the costs can be substantially influenced by your tax position. Be sure to consult a finance broker to help you select and structure your loan.
Low doc business loan pros & cons
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How to apply for a low doc business loan
You’ll still need to provide some supporting documentation when you apply for a low doc business loan, although it will be less stringent than other types of business finance.
1. Low doc paperwork
You'll need to submit some alternative forms of financial documentation, including:
- Bank statements for the last 6 months
- Business Activity Statements (BAS) or credit sales/merchant statements
- A signed declaration confirming your current business income
- A letter from your accountant
You may be asked to provide a personal guarantee for an unsecured business loan, so you may also need to provide evidence of your personal income, such as your latest tax return.
2. Business information
Lenders will also ask you to provide information about your business and about yourself, including:
- Proof you’ve been operating for the minimum required period
- Your business and personal credit rating
- Identification documents (e.g. driver’s licence, passport)
Most low doc lenders have an online application process where you’ll complete a short form and upload your documents. In some cases, lenders will make an on-the-spot automated assessment and you could have your loan approved within minutes. Others will follow up with a call from a loan advisor, especially if they require more information. If your application is approved, you can expect to have funds within days.
Top industries using low doc business loans in 2023
According to Lend proprietary data, the main industries applying for low doc finance in 2023, include:
- Construction & trades: 42%
- Professional services: 19%
- Transport: 17%
- Hospitality: 7%
- Primary industries (e.g. agriculture, food): 7%
Here’s a comparison of the type of documentation required for a low doc business loan compared to a traditional loan from a bank.
Low doc business loan vs bank business loan comparison
|Low doc business loan||Bank business loan|
|Bank statements for the last six months||Balance sheets for the past 2-5 years|
|Tax records for the last six months ||Profit and loss (P&L) statements for the past three financial years|
|Signed declaration of income or certificate of income signed by an accountant||Sales and cashflow projections|
|Copies of key contracts or sales agreements|
|Key liquidity, efficiency and profitability ratios|
|Your personal and business credit records|
|Business plan, including market and competitor analysis|
|Detailed business case for the loan indicating how you will use the funds|
|Details of the assets you propose to offer as collateral for your loan, including valuations and proof of ownership|
FAQs about low doc business loans
Where can I get a low doc business loan?
There are several lenders in Australia offering low doc business loans. Non-bank or specialist lenders tend to offer more competitive rates and a faster online application than banks.
Do I need a deposit for a low doc business loan?
You typically don’t need to provide a deposit for a low doc business loan as lenders will generally finance 100% of the loan cost if it’s under $150,000. However, you may choose to contribute a deposit to lower your loan amount and repayments. Alternatively, you may be required to contribute a deposit or collateral for the loan if you want to borrow larger amounts.
Can I get a low doc business loan if I have bad credit?
Yes, you may still get a low doc loan if you have impaired credit, providing you meet the lender’s most important eligibility criteria — the ability to service the loan over the agreed term. Your interest rate will be higher to reflect the added risk to the lender. You can alternatively speak to a finance broker about bad credit business loans.
Can I use a low doc loan to buy equipment?
Yes, you can use a low doc loan to buy business equipment or other assets, although interest rates are higher and loan terms are shorter (which means higher monthly repayments). It’s best to look for equipment finance solutions, although these will require you to supply more documentation.
Can I use a low doc loan to buy commercial property?
Yes, you can use a low doc business loan to purchase a commercial investment property, although lenders will only finance a percentage of the value (up to 80%). Low doc commercial loans for property have longer terms of up to 30 years.