A no-doc business loan is one that borrowers can access without substantial documentation. Rather than relying on income, lenders may approve borrowers based on credit history and collateral.
No-doc small business loans may be ideal for business owners whose revenue is not yet established but who are interested in getting access to cash quickly.
Learn more on no-doc business loans, how to qualify, and the downsides.
Key Points
• A no-doc small business loan is one that does not require extensive documentation.
• To get a no-doc loan, you may be asked to state your income or provide your yearly revenue numbers.
• Short-term, no-doc business loans include merchant cash advances, invoice factoring, and business credit cards.
• With no-doc small business loans, rates and terms will not be as favorable as other forms of financing.
What Are No-Doc Business Loans?
Some specialized lenders offer unsecured business lending that requires zero documentation – that’s where “no doc” comes from – or perhaps fewer application requirements than with conventional loans.
Usually, no-doc business loans don’t require collateral. Lack of collateral can sometimes hold some business owners back from being approved for financing from traditional lenders.
An unsecured business loan could help certain business owners get financing fast — even if you don’t currently qualify for other business lending options.
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Secured vs. Unsecured Lines of Credit
Unsecured lines of credit, unlike secured lines, do not require collateral to guarantee the funds. An unsecured business line of credit for startups can help entrepreneurs get financing without pledging collateral.
Collateral for a secured BLOC may take the form of a business asset — like real estate or equipment. With secured financing, lenders can seize assets to cover what’s owed if a borrower defaults and fails to pay the lender in full.
If you’re not sure how to secure a business line of credit or loan, but you don’t own any assets a lender would consider valuable, a no doc BLOC may be one option. A BLOC is typically unsecured, meaning you generally won’t have to pledge collateral on a business line of credit.
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Types of No-Doc Business Loans
There are a few versions of the no-doc business loan. Some lenders offer lines of credit you can draw from when you need cash, while others offer you a fixed sum all at once.
Unlike many other small business loans, these financial products sometimes don’t require any documentation. You may be asked to simply state your income or demonstrate your gross sales. Depending on the lender, you may or may not need to provide bank statements or profit and loss reports.
Examples of short-term no-doc business loans or short-term business financing might include:
• Invoice factoring
• Business credit cards
You may also consider low-doc loans. A low-doc business loan generally requires less paperwork (i.e. bank statements or merchant statements) during the application process.
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Who Offers No-Doc Business Loans?
No-doc small business loans are primarily offered by alternative lenders, including online lending platforms, private sources, and some non-bank financial institutions. These lenders are more flexible than traditional banks and cater to businesses that may not have the extensive financial documentation typically required for traditional loans. They are willing to take on the higher risk associated with no-doc loans in exchange for charging higher interest rates and fees.
Secured vs. Unsecured Lines of Credit
Unsecured lines of credit, unlike secured lines, do not require collateral to guarantee the funds. An unsecured business line of credit for startups can help entrepreneurs get financing without pledging collateral.
Collateral for a secured loan or line of credit may take the form of a business asset — like real estate or equipment. With secured financing, lenders can seize assets to cover what’s owed if a borrower defaults and fails to pay the lender in full.
If you’re not sure how to secure a business line of credit or loan, but you don’t own any assets a lender would consider valuable, a no-doc business line of credit may be one option. A BLOC is typically unsecured, meaning you generally won’t have to pledge collateral on a business line of credit.
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Pros and Cons of a No-Doc Business Loan
When it comes to unsecured business loans, no-doc options have benefits and drawbacks you might want to weigh:
| Pros | Cons |
|---|---|
| You can apply without compiling detailed documentation of your company’s finances | Lack of documentation means higher risk for lenders of these alternative small business loan options |
| Qualifying can be easier than qualifying for SBA loans/td> | Can include higher interest rates and fees than traditional financing |
How To Get a No-Doc Business Loan
To obtain a no-doc business loan, follow these steps:
1. Assess credit score: Ensure you have a strong personal credit score, typically above 700. A high credit score is crucial as lenders heavily rely on it in the absence of detailed financial documentation.
2. Identify collateral: Be prepared to offer substantial collateral, such as real estate, equipment, or other business assets. This collateral secures the loan and mitigates the lender’s risk.
3. Select the right lender: Research lenders that specialize in no-doc or low-doc loans, including online lenders and alternative financing companies. These lenders are more likely to offer such loans compared to traditional banks.
4. Prepare basic business information: While detailed financials are not required, you should provide basic information about your business, including its legal structure, industry, and length of operation.
5. Submit a business plan: If possible, include a concise business plan that outlines your business model, market strategy, and how you intend to use the loan proceeds. This can help build lender confidence in your ability to repay the loan.
6. Apply for the loan: Complete the loan application process with your chosen lender, providing all required information and documentation.
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Are No Doc Business Lines of Credit a Good Idea?
No-doc business loans aren’t necessarily a bad idea, but there are less costly financing options available to those that qualify. To be considered for the most desirable rates, you’ll need a solid credit score, a few years of business history, and consistent annual revenue.
The amount you pay in interest will generally be higher with no-doc options than with traditional loans. You might even find a business credit card with a low (or no) introductory APR that could cover the purchases you need.
You could wait to get funding, focus on building your credit so that you can try to qualify for more competitive rates later and seek out more affordable financing options down the line.
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Alternative Financing Options
If you are seeking alternatives to no-doc small business loans, several financing options are available that might better suit your needs, especially if you can provide some form of documentation or collateral. Here are a few options:
1. Traditional bank loans: These loans generally offer lower interest rates but require detailed financial documentation, including tax returns, financial statements, and proof of revenue. They are suitable for businesses with strong financial histories and good credit scores.
2. SBA loans: Backed by the Small Business Administration, SBA loans offer favorable terms and lower interest rates. While they require comprehensive documentation, they are accessible to businesses with less-than-perfect credit through SBA’s guarantee.
3. Business lines of credit: A line of credit provides flexible access to funds up to a certain limit. It usually requires some documentation but offers the advantage of only paying interest on the amount borrowed. It’s ideal for managing cash flow and unexpected expenses.
4. Equipment financing: This option allows businesses to borrow money specifically to purchase equipment, using the equipment itself as collateral. This reduces the lender’s risk and often makes the loan easier to obtain.
5. Invoice financing: Businesses can borrow against their outstanding invoices, providing immediate cash flow. This form of financing is especially useful for businesses with long payment cycles.
6. Crowdfunding and peer-to-peer lending: Online platforms, such as crowdfunding, can connect businesses with individual investors willing to lend money. These options may require a compelling business plan and are often used for specific projects or expansions.
Each alternative comes with its own set of requirements, costs, and risks, so it’s important to carefully evaluate which option best aligns with your business’s financial situation and goals.
The Takeaway
No business owner wants to be caught without having the capital they need to run day-to-day operations or to take advantage of emerging opportunities for growth. But taking out a no-doc small business loan has some downsides to consider, as well. Proceed only after doing your research.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What is a no-doc business loan?
A no-doc business loan is an alternative loan product that businesses may get with little or no financial documentation. It can provide businesses with a lump sum of cash and generally carries higher finance charges than traditional business loans.
How hard is it to get a no-doc business loan?
Getting a no-doc business loan is generally more difficult due to the higher risk for lenders and the stringent requirements for borrowers. Those with excellent credit, substantial assets, and the ability to provide a significant down payment or collateral have a better chance of securing such a loan. However, borrowers should carefully consider the higher costs and potential risks associated with no-doc loans.
What do you need to apply for a no-doc business loan?
To apply for a no-doc business loan, you typically need to meet several key criteria, including an excellent credit score, collateral and/or a down payment, a strong business plan, and personal and business identification.
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