Mortgage Language Lessons: Low Doc Loans

Low doc loans can be useful for those without a traditional proof of income method, for example regular pay slips. This is especially true for self-employed business owners. While the term doesn't necessarily imply a borrower can provide less income evidence, it does allow for the providing of different types of income evidence. Read on:

Low doc loans can be useful for those without a traditional proof of income method, for example regular pay slips. This is especially true for self-employed business owners. While the term doesn't necessarily imply a borrower can provide less income evidence, it does allow for the providing of different types of income evidence. Read on:

Most of us are familiar with the most simple and straightforward way for a business to borrow money. The owner or manager calls their local business banker (or logs onto their bank’s) website to find the product that seems fit for purpose. Some people may even shop around and look at rate quotes from other major banks before deciding which one seems ‘cheapest’.

Once they have chosen the bank, and the loan type – then comes the application. This process requires a business to provide all of its financial information over a two- or three-year term as well as the complete financial position of the loan’s sponsor or guarantor. Yes, a business loan for most small businesses involves attaching an individual’s (usually the business owner) personal finances to secure the loan. Now for some businesses, this process is straightforward as the business may clearly show consistent revenue as well as good profit margins.

There are businesses however, that can be very successful albeit in a less linear fashion. Profits may be realised over longer periods or come more ‘seasonally’. For example revenue for one year may be lower because of longer payment terms and be more than made up for in following years. Banks however, will usually only consider the information that’s in front of them and are very limited in their scope to include future profits or growth.

Property developers commonly fall into this category as well. Their ‘financial picture’ often depends on where they are in the development’s cycle. If they are in the middle of a construction project, there is a lot of money going out and not a lot coming in. Whereas, if they have completed the project and are on-market selling, their financial picture looks very different.

Issues such as these can limit really strong business from accessing the cash that they have a genuine need for, say, to go to the next level or bring on a new product or service. It goes without saying that can be crippling for a business.

Luckily, there are far more options open to businesses than the standard bank loan. A vitally important example of these is a ‘low-doc loan’. Simply put, a low-doc or doc-light loan can be secured with (as the name implies) fewer documents than a traditional loan. Or said another way, low doc loans give businesses the chance to secure debt funding without as much of a deep dive into the finances of both the company and the sponsor. In many cases, provision of some basic financials and a letter from a core advisor to the business, such as it’s principal management accountant, will be enough to get the loan approved.

Now, it is important to note that the big banks do not offer low doc options. As such, low doc loans come at low-doc prices with low doc rates. These are traditionally higher than the banks and are more expensive to service. That is the trade off for businesses who for whatever reason cannot meet the very high threshold of traditional loans but still get access to the finance they need.

As discussed earlier, not being able to meet the banks’ threshold does not necessarily mean that there is anything wrong with a business. It just means that the financials of the business may not meet the very narrow definitions of what are considered good cash flow, good profits etc.

In some circles, the very notion of low-doc loans carries a stench or stigma of being less than above board. Whilst we respect people’s opinions, there isn’t actually any basis for this stigma. Low-doc loans form an integral part of the lending landscape. Without them, many highly successful brands and businesses that you know very well, might never have caught your attention in the first place.

At Capstack we specialise in all forms of business lending including commercial property acquisition, property development and construction, business finance and asset finance (among others). Under all these categories there are full-doc AND low-doc options available from a wide variety of lenders. We will help you to discover what your options are and what products and lenders best suit your needs and circumstances. We’re only a phone-call, email or LinkedIn message away so – let your fingers do the work and let’s start the conversation today, to get your next project underway.

If you think this could be of use to you or your business, don't hesitate to contact us to have a confidential discussion.

If you are keen to learn more get in touch with the team at CapStack.

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Please let us know if we can help in any way to get your commercial property finance needs taken care of. Are you looking to purchase commercial or industrial property within Australia and require bank, non-bank, or private financing? CapStack can help. Are you a property developer looking for project finance to get your site moving? We can help assist you source finance. Are you a or property investor looking to purchase your next asset? Start here to connect with is and send though some basic information to get the ball rolling or email us directly. We work with lenders Australia-wide ready to fund investments and development projects. This is where CapStack comes in.

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