To get approved for a small business loan from a bank, businesses typically need to submit a long list of documents – including resumes, personal and business tax returns going back several years, and a business plan. The approval process can take months, and the sheer amount of paperwork involved can be daunting.
Fortunately, there are a growing number of alternative lenders that offer no- or low-document business loans. These products can work well for small business owners who don’t yet have consistent income to report or who need cash quickly to cover operating expenses. However, no-doc (also referred to as stated income) loans tend to come with higher interest rates and fees and less flexible terms.
Here’s what you need to know about no-doc business loans, the pros and cons of getting a stated income loan, and the different types of no-doc and low-doc loans available on the market.
What Is a Stated Income Business Loan?
Stated income business loans are loans that don’t require you to submit extensive paperwork (such as several years of personal and business tax returns) as proof of income during the application process. This is why they are also called no-doc or low-doc business loans.
Are there truly zero doc loans available? Not typically. Any business loan from a lender (rather than a family member or friend) will usually require at least some paperwork, such as an application, proof of identity, time in business, and/or proof of sales. However, with a no- or low-doc loan, the paperwork involved will be minimal and the application will be much shorter than with a conventional business loan.
Is Stated Income the Same as No Doc?
Yes, these terms are often used interchangeably to describe a loan that doesn’t require tax returns to show proof of income.
How Do No Doc Business Loans Work?
Applying for and getting a small business loan can be a lengthy and time consuming process. For many borrowers, this is because of the paperwork involved.
Typical documentation for a standard loan includes:
• Bank statements
• Employer identification number (EIN)
• Tax returns
◦ Personal and business
• Business license
• Business permits
• Business registration
• Proof of collateral
• Financial statements
◦ Balance sheet
◦ Profit and loss statement
◦ Cash flow statement
• Accounts receivable
• Accounts payable
• Debts
• Business plan
No-doc or low-doc small business loans require a fraction of what is listed above. Since there’s less paperwork demands, the process moves much faster than with other types of small business loans. In many cases, you can fill out the application completely online. The lender will then connect to your accounting software and bank account, making it possible to get approved within minutes — and funded as soon as the next business day.
Other than the expedited application process, however, no-doc business loans typically work the same as any other type of business loan. You generally receive the principal amount up front then pay back the loan (principal plus interest) over time. Like a standard loan, everything is clearly outlined in the loan terms.
Uses of Stated Income Business Loans
No-doc loans are typically used to help with short-term funding needs. For example, they can help with:
• Cash flow shortages: If you have a few invoices that are overdue, a no-doc loan can tide you over until you receive funds.
• Taxes and payroll: A no-doc loan can help you meet immediate needs, such as making a tax deadline and paying your employees on time.
• Inventory: If your business is seasonal, a no-doc loan can help you prepare for upcoming sales. It can also be useful if you experience a sudden increase in purchase orders but don’t have enough inventory to complete them.
• Equipment: Whether you need a new computer, a company car, or heavy machinery, you can use no- or low-doc financing, such as an equipment loan, to get the tools you need for day-to-day operations.
• Emergency expenses: Sometimes your available cash is simply not enough to handle a sudden emergency or short-term opportunity. When this happens, credit cards often can’t handle the size of the expense and a loan is often your only option.
Pros and Cons of Stated Income Business Loans
No-doc and low-doc loans can give your business access to cash quickly, sometimes within 24 to 48 hours. They are quick and easy to apply for, and generally have lower credit score requirements than traditional loans.
But there are also some drawbacks to stated income and low-doc loans. Due to the higher risk these loans represent to lenders, the loan amounts, repayment terms, and interest rates are typically not as favorable as what you would find with a traditional business loan. If you’re looking for a large, long-term loan – or cost is your top priority in choosing a lending product – you may be better off with a traditional bank or SBA term business loan.
| Pros of Stated Income Business Loans | Cons of Stated Income Business Loans |
|---|---|
| Easy and fast application process | Not as many no-doc loans available as standard business loans |
| Fast loan disbursement | Lower amounts |
| May qualify even if you don’t have excellent credit | Shorter repayment periods |
| Loans can be used for a variety of common business expenses | Interest rate may be higher than other financial products |
Qualifying for a No-Doc Loan
No-doc business loan requirements vary depending on the lender and the type of loan. In some cases, a lender may require that you’ve been in business at least six months, have a credit score of 500 or higher, and an annual revenue of $200,000 or more.
Other lenders, however, may simply need to see that your business does a certain amount of credit card transactions per day or has a certain number of invoices out to clients. Unlike traditional business loans, proof of collateral is typically not needed.
Recommended: Is a Business Loan Considered Income?
Finding Stated Income Business Loans
Your best bet for finding small business loans that require little documentation is through alternative online lenders. These lenders offer a wide range of financing options, including short-term loans, lines of credit, invoice financing, and merchant cash advances.
However, because they don’t face the same regulations as banks and typically use technology to analyze underwriting criteria, applicants don’t need to provide as much documentation about income and may also be able to qualify with less-than-excellent credit.
Typical Requirements for No Doc Business Loans
With a no-doc or low-doc loan, you don’t need to submit much paperwork or a lengthy paper application to apply. The process is often done entirely online and often the only criteria you need to provide is:
• One-page loan application
• Age of the business
• Business’s credit score
• Business bank statements
• Invoice or merchant processing statements (if applicable)
Stated Income Business Loans vs Conventional Business Loans
| Stated Income / No Doc Loan | Conventional Business Loan | |
|---|---|---|
| Fast Application Process | ✓ | X |
| Collateral needed | X | ✓ |
| Low interest rate | X | ✓ |
| Strict loan use requirements | X | X |
| Fast Disbursement | ✓ | X |
| Loan interest may be tax deductible | ✓ | ✓ |
Low-Doc Business Loans
Below are some small business financing options that require very little paperwork in order to get approved.
Short-Term Business Loan
Short-term business loans are usually unsecured, which means they usually don’t require any proof of collateral. And, when you work with an online lender, you may not need to provide much more than your bank account information and proof of revenue. As with other term loans, you receive the entire loan amount in one lump sum; you then pay it back (plus interest) in regular installments, which could be monthly, semimonthly, or weekly.
Keep in mind that short-term also means lower total loan amounts and quick repayment. You’ll usually have anywhere from 18 to 36 months to pay back your loan.
Merchant Cash Advance
Business owners with mostly credit card sales can turn to a low-doc merchant cash advance (MCA) to fill in cash flow gaps. With this type of financing, you receive a lump sum of money from an MCA company, called an “advance.” In return, you give that company a small percentage of each credit card sale you make until the advance is paid off (plus fees).
You can usually apply for a merchant cash advance entirely online with very little paperwork (sometimes just a few months of your business’s credit card statements). Approved borrowers typically receive funds shortly after applying.
Invoice Financing
Invoice financing requires very little paperwork to get rolling because the proof of your creditworthiness rests with your unpaid invoices. With invoice financing, you get quick access to cash by selling unpaid customer invoices to a third-party company at a discount. Typically, you’ll get around 85% to 90% of your money upfront, with the rest (minus fees) coming after the invoice is paid.
Business Line of Credit
A no-doc business line of credit gives your business access to cash when you need it, rather than getting it all at once. You can draw funds up to an agreed-upon credit limit and only pay interest on what you draw. Once you’ve paid back the loan, you can draw from it again. While you may need to provide some minimal documentation up front — similar to a short-term loan — you won’t need to give your lender any documents when you need to make a draw.
Equipment Financing
Equipment financing can be a good, low-doc loan option if your business needs cash to finance a piece of equipment. Typically, you get a quote for the equipment you’d like to buy, and a lender then fronts you all, or a large portion, of the cost. Since the equipment you’re purchasing secures the loan, you don’t need to provide any proof of collateral. And, some lenders don’t require documentation like tax returns or financial statements for borrowers financing equipment of $250,000 or less.
Alternative Loan Options
If you’re not looking for a large amount of capital, here are some alternative funding options that can help grow your business.
Business Credit Card
While you typically do need to provide documentation to get approved for a business credit card, it’s typically a lot less than getting approved for a traditional small business loan. And if you can qualify for a 0% intro APR business credit card, you can spend for a predetermined period without interest. If you are able to pay off your balance before the end of the introductory period (which may be a year-plus), you don’t have to pay any interest at all. At the same time, you’ll be building valuable business credit along the way, which can help you get more financing later.
Crowdfunding
Starting a crowdfunding campaign for your business does take some time and effort, but it can be a good funding option for new ventures that don’t yet have the annual revenues needed to qualify for a traditional business loan. In some cases, the only thing you have to give people who invest in your business is a small reward.
Recommended: Business Income and Taxes
Peer-to-Peer Lending
Peer-to-peer (P2P) lending, also known as “crowd lending,” allows you to get loans directly from other individuals via an online P2P platform. Most P2P sites have a wide range of interest rates based on the creditworthiness of the applicant.
The Takeaway
If you’re interested in fast business financing with little hassle, then you might want to consider no-doc or low-doc business loans. These lending products are generally quick and easy to apply for, and you may be able to receive the funds within a day or two. However, it’s important to know that this type of financing tends to come with higher interest rates, lower loan amounts, and short payback periods.
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
Are no-doc business loans difficult to obtain?
Compared to other business loans on the market, no-doc (or stated income) business loans are easier and faster to get approved for.
Can stated income loans be long-term loans?
No, no doc loans are short-term loans. If you are pursuing a large or long-term loan, a more conventional business loan would be a better fit.
Are no doc and stated income loans the same?
Yes, these terms are often used interchangeably to describe a loan that doesn’t require extensive documentation for proof of income.
Can start-ups get no doc loans?
Typically, you need to be in business for at least six months to qualify for a no-doc loan.
Photo credit: iStock/Kerkez
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