A full documentation loan (“full doc”) is a loan that requires documentation of all income and assets, for example through tax returns and company financials. So, a low documentation loan (“low doc”) is a loan that doesn’t require the same level of documentation. It’s ideal for businesses that cannot provide full documentation, perhaps because they don’t have complete financial statements.
There are many reasons why companies might find themselves in this situation. They might be late or slow to file their tax returns, or can’t show a high income because of write-offs, or reinvesting profits in the business. They might have run into some problems with lending through a bank or have a complex business structure that means standard company financials do not tell the full story.
While low doc loans used to have a higher interest rate, these days, they can be quite competitive.
If you cannot provide the types of documents required for a full doc loan – such as company financial statements and tax returns – you can provide essential information through other means, such as a declaration from your accountant of your income or 6 to 12 months of bank statements. In this way, you demonstrate that you can service the loan.
Lenders consider low doc loans as higher risk for them, so they may attract higher interest rates and charges. Some lenders also require a larger deposit, though that larger deposit may result in a lower interest rate.
A common scenario is for business owners to use low doc commercial loans to buy the premises that they’re renting. But they may have difficulty showing proof of their income. For example:
For a low doc business loan, a lender has particular ways they require you to prove that you have a high enough income to make repayments on a loan. A lender will also help you determine the best type of low doc loan to suit your needs. In addition to basic low doc loans, there are also line-of-credit low doc loans and fixed-rate low doc loans.
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