Low doc business loans are ideal if you’re unable to provide standard income evidence such as tax returns.
However, it can be difficult to get approval. You’ll generally need to pay higher interest rates as well.
Apply with the right lender that can consider your business income without additional requirements.
Are low doc business loans available?
Low doc business loans are available! However, getting loan approval is usually difficult. This is mainly because of their higher risk.
As with other business loans, your application as well as business is graded by the bank.
Typically, banks grade loan applications from A to D, A being low risk and D being high risk. They grade businesses from 1 to 15 based on different factors. The highest grade you can get is 1A.
Business loans are always assessed on a case by case basis. Low doc business loans won’t be approved unless you have a strong application and a great business loan proposal.
Different lenders assess low doc business loans differently. You can avoid stricter requirements by applying with the right lender.
How much can I borrow?
Generally, you can borrow up to 80% Loan to Value Ratio (LVR) of the property you’re securing the loan against. Most banks don’t go over 80% LVR but a select few non-bank lenders may.
If you’re borrowing 65% of your security property, you may be able to negotiate reduced interest rates.
However, the loan amount generally depends on who you apply with and how they assess your application. If you’re considered high risk, banks may not let you borrow more than $1 million.
We have highly experienced mortgage brokers that specialise in low doc business loans. You can call us on 1300 889 743 or fill in our free online assessment form to find out how much you can borrow on a low doc business loan.
What can I use to prove my income?
In most cases, you’ll need to sign an income declaration form that confirms your current business income. You may also need to provide:
You can also provide income forecasts but you’ll generally need to meet the following requirements:
- An accountant must have prepared or verified the profit forecast.
- You have real estate as security for your low doc business loan.
- You’re releasing equity as a business loan.
If you use MYOB or you have a bookkeeper, you can use interim financial statements as evidence of your business income.
As a general rule though, you must meet the following requirements:
- Your interim financials show a high income.
- Your accountant or bookkeeper can verify that the financials are true and correct.
- You can provide additional documents to support your interim financials. This can include BAS statements or old tax returns.
What should I watch out for?
Low doc business loans are a higher risk so banks assess them more conservatively. You can avoid rejection by a bank if you prepare yourself before applying.
Some of the common reasons why low doc business loans get declined include:
- The income declared isn’t enough to service the loan.
- The security property is in a high risk location.
- Low credit rating.
- A bad credit history.
- Unsuitable property type for low doc business loans.
Please note that bad credit low doc loans are available. However, you’ll need to meet additional requirements and have a strong application.
Having an acceptable security property
Typically, non-specialised properties such as offices and factories or residential properties are acceptable. This is because they are easily saleable, valued more accurately and are less likely to fluctuate in value.
Most lenders don’t accept properties in remote locations, small rural towns or hobby farms. They assess location by the postcode and usually have their own postcode location guide.
If you want to learn more, you can check out the acceptable properties for low doc loans page.
Add back your expenses to increase your income
If your business has significant depreciation, adding back expenses can be the way to go. However, this will require you to provide two years’ tax returns with evidence of expenses that can be added back to your taxable income.
By increasing your taxable income, you can qualify for a business loan with full income evidence. Generally, the following expenses can be added back:
- Extra superannuation contributions.
- Losses carried forward from prior years.
- Negative gearing deductions from your investment properties.
- One off expenses such as moving your business or a lawsuit.
- Trust distributions to family members for tax purposes.
- Depreciation of assets.
Where can I find current rates for low doc business loans?
Bank don’t always advertise their lowest interest rates, especially for low doc business loans. This is why it’s usually tough to shop around.
However, you can go to the business loan interest rates page and check out the low doc loans section. You can find there the best rates for low doc business loans from our panel of lenders.
Please note that business loan interest rates aren’t always consistent among lenders.
How can I switch from a low doc to a full doc loan?
Lenders typically allow you to switch to a full doc business loan after two years of perfect conduct. Perfect conduct means on time repayments without any missed repayments in between.
Some lenders will require you to provide full income evidence such as tax returns when you switch over. Low doc business loans generally have higher interest rates. By switching to a full doc business loan, you can potentially save thousands over the term of your loan.
You can call us on 1300 889 743 or complete our free online assessment form to speak with one of our specialist mortgage brokers about switching to a full doc business loan.