How Do No-Doc / Low-Doc Business Loans Work?
Small business owners can complete an easy and quick online application. Unlike traditional lenders who typically require applicants to provide tax returns, profit and loss statements, balance sheets, A/P or A/R, and other financial documents, alternative lenders offer similar marketplace loans with less documentation requirements.
Typically, borrowers will be asked to provide merchant processing and/or bank statements. Since there’s less paperwork demands, the process moves much faster.
Most lenders allow the applicant to complete all forms online, for a hasslefree and convenient experience. Businesses can receive capital immediately.
What Are the Different Types of Reduced Paperwork Business Loans?
Most lenders will break down reduced doc loans into three different categories. Below we’ll offer some clarity and overview the three main loan types.
Low-Doc Business Loans
This is the most popular loan option for small business owners and entrepreneurs seeking reduced paperwork financing. There’s a significant reduction in documentation compared to traditional loan requirements, such as an SBA loan from the U.S. Small Business Administration (SBA) or a real estate loan that may require collateral.
Conventional lenders usually ask for multiple documents to verify financial history and performance. The increased paperwork ultimately ends up extending out funding timelines.
At Clarify, we keep things simple. We only require bank statements from the last three months. Reducing paperwork demands allows us to move quickly to get you financing.
Business owners frequently choose to work with an online lender over a traditional lender when they value speed in funding and want to increase their approval odds.
Stated-Income Business Loans
This funding type may require some documents, but like low-doc business loans, stated-income loans require less paperwork than standard business loans.
Borrowers with limited financing options usually pursue stated-income loans. Self-employed individuals and freelancers, for example, might have huge fluctuations in income, multiple streams of income, or receive a larger portion of their revenue in cash.
When this happens, business forms and tax documents may not accurately reflect an applicant’s true financial situation. These borrowers may use a stated-income loan because they can qualify for a larger loan amount.
Their self-reported statement determines funding eligibility, and there’s no need for formal proof. Lenders don’t require the applicant to provide verification materials.
While this option might seem easy, it’s not without a catch. Basing funding on word of mouth rather than financial statements means more lending risk.
Because lenders take on more risk for stated-income loans, financing terms tend to be less competitive. To reflect the increased lending risk, stated-income business loans have higher interest rates than low-doc loans.
No-Doc Business Loans
No-doc business loans are pretty much what they sound like! You don’t need to provide any financial statements or documentation to receive financing. Funding is provided based on credit standing and whatever information you provide in your loan application.
Lenders take on a large risk when offering no-doc business loans because of fewer safeguards. Of the three loan types, no-doc loans tend to have the least competitive repayment terms and, therefore, are often used as a last resort for businesses that need funding in the least amount of business days possible.
Like stated-income loans, the increased lending risk impacts the loan terms and interest rates. We always recommend prospective borrowers try for a low-doc business loan over a no-doc to qualify for the most competitive financing options.
Common No-Doc Loan Uses
Clarify offers low-doc financing to cover all your business needs. Here are some of the top ways business owners use the funding.
Short-term Needs
Less paperwork can mean getting funds quicker, usually the same day. You may not have time to wait if you have an immediate financial need. Get a fast business loan to take care of urgent expenses.
Equipment & Machinery
Finance technical equipment, heavy machinery, automobiles, and more. Most industries have some type of equipment or machinery needed to get the job done. Whatever your needs, we’ve got you covered.
Payroll & Taxes
Payroll and taxes are some of the highest expenses a business incurs. Loans can be used to help you meet any outstanding financing obligations. Small business owners use funds to cover staffing costs and tax burdens.
COVID-19 Assistance
Offset a decline in sales or increase in operational expenses caused by the novel coronavirus with an infusion of working capital. We understand how difficult these unprecedented times have been for small businesses nationwide. Use financing to pay for personal protective equipment (PPE), employee and customer safety products, and any extra sanitation measures you implement.
Inventory
Get the inventory you need for your company in the best time frame for you. You can allocate funds toward buying orders, ensuring you can always meet customer demand.
Smoothing Cash Flow
Business owners often are short on cash but expect to receive additional funds soon. Smooth over cash shortfalls with financing. Our expedited loan process ensures fast access to capital in your bank account.
Frequently Asked Questions About No Doc Loans
Most business lenders are unable to provide no-income business loans. Providing business loans without proof of income increases the risk of lenders and brokers significantly. While we can’t offer unsecured no-doc business loans, we offer similar financial products.
A low-doc business loan is a viable and popular solution for companies wanting to reduce the documentation they need to complete. Many lenders can provide business loans primarily based on bank statements, requiring little additional information. By asking for some form of verification and proof, the integrity of the business lending industry stays protected.
