What Is a No-Doc Business Loan, and Is One Right for Your Business?
Get quick access to funds for your business
By ELYSSE BELL
Published May 30, 2023
Reviewed by CIERRA MURRY
Fact checked by VIKKI VELASQUEZ
No-doc business loans are a type of business financing that do not require a lot of paperwork or lead time to secure. The name is a bit misleading, as most loans still require the submission of at least some documentation. However, these types of loans have fewer or less extensive requirements than traditional bank loans. It is worth noting that the relative speed and ease of securing a no-doc business loan usually comes with the caveat of high interest rates, short payment terms, and lower loan amounts, among other considerations. This is due to the higher amount of risk that lenders take on in these arrangements.
KEY TAKEAWAYS
No-doc business loans are a relatively quick and easy way to secure funding for businesses that may not be able to access it through traditional bank loans.
There’s no such thing as a true “no-doc” loan, as all loan applications involve at least some documentation; however, many no-doc loans can be applied for online and do not require extensive paperwork.
Many no-doc loans have very high interest rates and short payment terms, and they offer relatively lower loan amounts than traditional business lenders.
What Is a No-Doc Business Loan?
A no-doc business loan is a way for business owners to secure financing without having to submit extensive paperwork. Traditional bank loans may ask for documentation such as personal and/or business financial statements, business licenses or certificates, loan application history, tax returns, and other forms and information. Preparing and submitting the information requested by traditional lenders can often be a lengthy process. By contrast, no-doc business loans offer a relatively quick way for borrowers to gain access to credit, sometimes even within one business day of the application.12 How Do No-Doc Business Loans Work?
Like any other type of loan, no-doc business loans require the borrower to sign some sort of terms agreement or contract. However, they generally do not entail as much paperwork as traditional forms of lending, in some cases because the application is made online and analyzed by specialized software programs. As such, they may be more suitable for business owners who are experiencing issues accessing credit or financing by other means, or who need to secure funding quickly. Some types of no-doc business loans are secured with collateral, while others are unsecured or leveraged against business factors other than assets, such as credit card volumes or customer invoice payment history. Some do not require credit history as part of the application. Types of No-Doc Business Loans
There are several types of no-doc business loans, all of which have slightly different structures and application processes. Contrary to the name, most no-doc business loans do require some sort of documentation on the part of the borrower; however, the requirements are generally less rigorous (and the turnaround time faster) than other types of loans. Invoice Financing
Also known as accounts receivable financing, invoice financing is a method of obtaining up-front access to credit that is tied to the value of a business’ unpaid invoices. In this type of arrangement, an invoice financing company pays out a loan that covers a certain percentage (usually around 80% to 90%) of the value of the business’ unpaid invoices. Generally, this type of loan is better suited to business-to-business (B2B) companies. Once the invoice is paid off by the customer, the business is then responsible for repayment to the financing company, with interest. Interest rates for invoice financing vary by industry and situation, with the low end at 1% to 1.5% per month and the high end at 3% to 5% per month.3 Merchant Cash Advance
Also known as a business cash advance, this type of financing lends against the value of a business’ debit and credit card transactions. Merchant cash advance providers pay a lump sum to the business owner, and the repayment is made from future sales. This option is best for businesses with high sales volumes, as repayments are usually taken daily or weekly. Merchant cash advances generally have high annual percentage rates (APRs), ranging from 30% at the low end to 350% at the high end.4 Short-term Business Loan
Short-term business loans, also known as working capital loans, can have repayment terms of three years or less, though they are generally around 12 months or less. Lenders pay a lump-sum amount up front, and borrowers can use it for a variety of purposes. However, since these types of loans have short repayment terms, many require daily or weekly payments and can have high interest rates or factor rates.
Business Line of Credit
In contrast to lump-sum loans, business lines of credit allow borrowers revolving access to credit over a set period of time, similar to a business credit card. However, one benefit to business lines of credit is that they can have lower APRs than business credit cards—though they may range anywhere from 8% to 60% or higher. (Lenders are not required to publicly disclose their rates for business lines of credit.)5 These types of loans can be secured or unsecured, depending on the amount, though many unsecured lines of credit have variable interest rates. If paid off quickly, business lines of credit can also be helpful in helping a company build a good credit profile.
Advantages and Disadvantages of No-Doc Business Loans
No-doc business loans have several pros and cons that are worth considering when comparing between potential sources of financing. Advantages include:
Quick access to credit (sometimes in as little as one business day)
Less rigorous documentation required
Less extensive requirements in terms of credit score, business age, or revenue, among other considerations
Convenient application process, with many lenders offering online applications and approvals
Disadvantages include:
Higher APR, interest, and factor rates and fees
Shorter repayment terms, sometimes with daily or weekly payment schedules
Potentially lower loan amounts than traditional loans
Alternatives to No-Doc Business Loans
Other types of financing that businesses might consider in favor of traditional bank loans include microloans, inventory financing, equipment financing, invoice factoring, business term loans, commercial mortgages, startup loans, business acquisition loans, or business credit cards. If time or credit history is not an issue, traditional bank loans, especially U.S. Small Business Administration (SBA) loans, might be a less expensive option for businesses needing to access credit. What Is a No-Doc Business Loan?
A no-doc business loan is a type of loan for which the borrower does not have to submit extensive amounts of paperwork. As such, they tend to be fairly quick (with turnarounds as fast as one business day in some cases); however, they generally have short repayment terms and high interest rates.
Is There Such a Thing as a No-Doc Loan?
There is no such thing as a loan that does not require any documentation at all. No- or low-doc loans have less rigorous paperwork submission and approval processes than traditional bank loans and are generally a quicker way to access credit. This is because the borrower does not have to spend as much time gathering their application documents and because many no-doc loan applications are done online.21
Should You Get a No-Doc Business Loan?
No-doc business loans may be a good option for companies that require quick access to credit but have high confidence in their ability to pay back the loan. They may also be a worthwhile option for businesses without good credit history. However, the trade-off in convenience for no-doc business loans is generally a high interest rate and a short repayment term.
It is crucial to fully review and understand the terms of any loan and realistically assess the risk involved before making any application.
How Do You Get a No-Doc Business Loan?
Many no-doc business loans can be applied for online and have quick turnaround times. To apply, borrowers must ensure that they meet the specific eligibility requirements for the loan and have the information on hand that is required for the application. Lenders may or may not run a credit check or ask the business for access to their accounting software or bank account to review financial history or statements.
The Bottom Line
No-doc business loans can provide businesses with quick and relatively easy access to credit, but with shorter repayment terms and generally high interest rates. They may be a good option for companies that do not have good or extensive credit history, or businesses for which time is of the essence in securing funding but that have high confidence in their ability to repay and meet the payment deadlines.
Comments