What Is a No-Doc Business Loan?
Some lenders advertise “no-doc” business loans, which require less documentation than traditional loans — but there is still some paperwork. Borrowers are often required to provide items like bank statements to show proof of revenue for no-doc loans, but otherwise there tends to be fewer requirements.
Common types of no-doc financing options include short-term business loans, merchant cash advances, invoice financing and lines of credit. Borrowers may be able to get funding more quickly with no-doc loans, but the repayment terms or interest rates on those loans may be less favorable than traditional business loans.
Types of no-doc business loans
While the following may not always truly be no-doc business loans, as they do require some documentation, here’s several types of no-doc or low-doc small business loan and financing options:
Online or alternative lenders may offer low- or no-doc short-term business loans. Short-term loans range from a few months to a few years and may require proof of monthly revenue or minimum credit score.
Unsecured no-doc business loans don’t require the borrower to put up collateral, and they don’t require as much paperwork as traditional secured loans. You might still need to provide bank statements to qualify.
Merchant cash advance
A merchant cash advance (MCA) works differently than other types of financing: businesses receive funding in a lump sum and then are required to pay back the advance with a portion of their daily sales, typically credit card sales.
To ensure that you’re able to pay off the MCA, some lenders may request access to your bank accounts, while others may require a few months of bank statements. But merchant cash advances are an option for businesses with poorer credit or those that need urgent funding.
Line of credit
A business line of credit is a flexible form of financing that a business can draw from on a revolving basis. Instead of borrowing a lump sum, you’ll only pay interest on the amount you withdraw.
Secured lines of credit may offer high spending limits and lower interest rates, but unsecured lines of credit may require less documentation. For example, one lender does not ask for proof of revenue as long as you have a credit score of 680 or higher.
Invoice financing allows businesses to borrow money by providing lenders with customer invoices. As part of the loan agreement, the business will pay a portion of those outstanding invoices once the customer has paid them.
Businesses that need imminent cash flow and can’t wait for customers to pay those invoices may turn to invoice financing. Sometimes lenders will require copies of those invoices as part of the financing process, even if they don’t require other documentation commonly included in traditional loan applications.
Pros and cons of no-doc business loans
Receive funding more quickly than traditional loans
Higher interest rates and more unfavorable repayment terms
Apply for loans without extensive documentation
May require granting access to business accounts or software
Lenders may be more likely to work with bad credit
Often have lower funding amounts than traditional loans
No-doc business lenders
Large banks and credit unions are unlikely to offer no-doc or low-doc business loans, as they prefer to do more extensive due diligence on loan applications. Lenders who offer no-doc business loans tend to be online, alternative lenders who specialize in lending to businesses with bad credit.
Those no-doc lenders have emerged to finance small businesses, those with a shakier credit history and businesses with an urgent need for funding. Some lenders wouldn’t want to take on the increased risk inherent to no-doc loans. For example, Small Business Administration (SBA) loans applications require extensive documentation — as a tradeoff for generous repayment times and relatively low interest rates, the SBA wants to ensure strong business finances. Alternative lenders offset the risk with higher interest rates and repayment terms.
Documents required for loans
Even for many “no-doc” loans, you may be required to provide some documents. Those may include business bank statements, which are the revenue numbers in the loan application.
Sometimes no-doc lenders won’t even require proof of income documentation, but they may request access to banking or accounting software instead of asking for those statements.
Required documents for traditional business loans often are more extensive and commonly include:
- Tax returns
- Business licenses
- Articles of incorporation
- Accounts payable
- Accounts receivable
- Loan application history
- Borrower information
- Business plans
- Projected financial statements
Each lender has different requirements, but government-sponsored loans tend to require the most documentation.
Should I take out a no-doc loan?
No-doc business loans could be an option if you think your credit score or providing business documentation would make it hard to get a business loan. But, if you’re able to supply commonly required documents, you may find better rates and longer repayment terms with standard loan products.
Online lenders commonly have more lenient eligibility criteria than traditional brick-and-mortar banks, so explore all your options before you decide if a no-doc business loan might be right for you.