For small businesses approaching traditional banks for a small business loan, the process can seem quite complicated and time-consuming. Typically, traditional banks may request excessive amounts of information about your business. From legal paperwork, tax returns, financial statements and sometimes they might even ask for a business plan. If you’re not able to provide this information, you run the risk of your application being rejected.
A low doc business loan can save you from these challenges. It’s an ideal solution for businesses who have difficulty providing sufficient information to qualify for a traditional loan. Here we discuss how it works and the things to consider before applying.
What is a low doc business loan, and how does it work?
Low doc loans give businesses quick access to finance without needing to provide the same level of documentation as a traditional loan. These type of loans are designed to be quick and simple. It’s a good solution for businesses that are not able to provide the necessary tax returns and financial statements.
As lenders accept a higher level of risk when they approve low doc loans, it can attract higher interest rates. But if you shop around, you may be lucky to find that sometimes the rates can be just as competitive as the banks.
What can I use the loan for?
Low doc loans can be used in a variety of ways. They are not restrictive and not secured in many cases. For example, it’s a good option for business owners needing quick financing and are not able to wait for the approval times of traditional banks. It’s also beneficial if you want to take advantage of seasonal discounts or time-sensitive opportunities. You can also use the funds to expand your operations, invest in marketing and to restock supplies. The list of reasons are endless.
What are the advantages?
- Quick turnaround times to get the approval and finance you need
- You may still be able to apply even if you have bad credit or no credit history
- Simple application process as less documentation is required
What are the disadvantages?
- It can often attract higher interest rates due to the higher risk for lenders
- Depending on the type of low doc business loan – larger down payments may be required if you are lending against your mortgage
5 things to consider before applying
When weighing up the different low doc business loans, keep in mind the following points:
- Interest rate: As these type of loans often feature higher interest rates, make sure to do your research and read the fine print. Compare to see which lender offers the most affordable repayments for your situation.
- Loan fees: The fees also impact the cost of the loan, this includes the establishment and ongoing fees (i.e. direct debit and monthly fees). Be aware of any other charges such as late penalty fees.
- Maximum Loan to Value Ration (LVR): If you’re lending against your property and depending on which lender you go with, you may be able to borrow up to 80% of the value of the property as security for the loan. However, if you’re opting to go with an unsecured low doc business loan this does not apply.
- Loan amount: Check the minimum and maximum loan limits. Keep in mind that the maximum loan available to borrow will depend on your financial circumstances.
- Repayment schedule: Once the rates and fees have been taken into account, make sure you completely understand what your ongoing repayments will be. It might be worth asking if it can be tailored to suit your cashflow or if you’re able to make additional repayments.
Lastly, when you speak with lenders, make sure to find out precisely what documents are required when applying for a low doc business loan. It will save you from going back and forth with the lender as you collate the information. In addition to this, it will save your credit file from unnecessary declines.
For more information to help you run a successful small business, check out the following articles:
- Small Business Marketing Tips to Boost Your Holiday Sales
- Tips for Surviving Your First Year in Business
- Working Capital: What is it and Why Does Your Small Business Need it?
- 25 Ways to Grow Your Small Business Fast
If you’re looking for funds to help give your venture the boost it needs, a small business loan could be the solution! Call 1300 00 LUMI or visit our website to see how an unsecured business loan can help you.