What is a Low-Doc Loan?

What is a Low-Doc Loan?

Below is a Complete Guide to Low-Doc Loans and How They Can Help Your Business.

‍Definition of a Low Document/Low-Doc Loan

A low-doc or Low document loan is a type of loan where the borrower does not need to provide any documentation to verify income.

This type of loan is often used for people who are self-employed as they don’t earn regular income.

How Do Low-Doc Loans Work?

A low document loan is a type of loan that requires less or no documentation than a traditional loan.

Low-document loans are predominately for ABN Holders who haven’t done their current financials so proving income can be difficult.

The main requirement for a low-document loan is that the applicant must have sufficient income to repay the monthly payments and have some form of credit history, such as a current asset/personal loan or mortgage. In some cases, lenders may request for bank statements to show turnover and ask you to sign a declaration of income to verify your income.

Why are Low Document Loans Beneficial for Businesses?

There are many reasons why low document loans are beneficial for businesses. For example, they help to reduce the financial burden on the borrower and provide them with a more flexible repayment schedule. You don’t need to provide detailed document and proof. This is extremely helpful for start-ups and small businesses who don’t have documentation to apply for a traditional term loan.

How to Qualify for a Low Document Loan

Qualifying for a low-document loan is not as hard as it sounds.

First, you will need to meet the lenders criteria. As there are multiple lenders who offer a low doc product we will stick to the common criteria.

-    Current Drivers Licence and Medicare Card

-    Must be an Australian Citizen or Permanent Resident

-    Must have an ABN running 2+ years, if not the lender will require 3 months bank statements and/or 20% deposit.

-   Have a mortgage or own a property/investment property. (If not 20% deposit required)

-    No adverse credit on file

-    The asset you are purchasing must be predominately for business use.

-    Business must meet low doc criteria – Some lenders have a strict ruling on what businesses can/can’t low doc. Speak to your broker to see if you qualify.

If the lender requires 3 months bank statements they will be checking to see the following:

-       Income credits from clients

-       Conduct on the bank statements – No dishonours, no overdraws etc

-        If any loans- current conduct on them showing no missed payments.

What are the Advantages of a Low Document Loan?

A low document loan is a type of loan that does not require the borrower to provide as many documents.

Some lenders may require tax returns, tax invoices, and bank statements for a normal business loan. The application process for this type can take over a week for assessment, which for a business is not ideal especially if they require the asset/loan for urgent use.

What are drawbacks of low document loans?

Low document loans are a type of financing that doesn't require the borrower to provide any collateral. It is often used by people who have a good credit score or those that have an established business.

Some of the drawbacks of low document loans are:

- It can be more expensive.

- It is hard to get approved for these types of loans if you have a low credit score or bad credit.

- Some lenders may request a 20% deposit on the asset, if you’re a new start up or tight on cash flow this may be an issue.  

What are some of the assets that meet low document policy?

Primary Assets

-      Commercial vehicles up

-      Buses

-      Yellow goods with wheels and tracks – Civil construction, excavators, forklifts, loaders, material handlers and rollers.

-      Trailers and Caravans

-      Wheeled and tracked equipment

Motor Vehicles

-      Motor vehicles up to 4.5T

Secondary Assets

-       Industrial Plant

-       Medical

-       Printing

Tertiary Assets

-       Office furniture and equipment

-       Solar

-       Information Technology

-       Gym Equipment (New Only)

-       Telephony

There are more assets that can be financed but rule of thumb is, if it has a serial number the lender will finance it.

Conclusion

In conclusion Low-doc loans are a great tool for business owners to obtain asset/business if they haven’t got current proof of income.

As always if you have any questions at all please contact our team directly by calling us on 1800 421 800 or send us an emailadmin@hannalending.com.au and one of our brokers will be able to assist you!

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