No-Doc Business Loans: What They Are and Where to Find Them

Traditional business lending often involves a long and paperwork-heavy application process, which is why we’ve seen the rise of alternative online lenders that bypass the complex underwriting procedures and provide funds faster.

These loans are often called ‘no-doc loans’, even though a more accurate way to describe them would be ‘low-doc’ or ‘reduced-doc’ loans.

How No-Doc Business Loans Work

While the naming of these loans would make one believe that all you need to get them is a simple click or a signature, the truth is that lenders will almost always ask for a few key details before approving the application.

For instance, most lenders will require you to provide your Social Security number and basic personal information, proof of identity for business owners and business bank statements going back at least a few months. Some lenders also require an overview of monthly or annual revenues.

Still, this pales in comparison with large commercial banks or SBA loans, which dig deep into tax returns, balance sheets, business plans and profit and loss statements, while also requiring a stronger credit profile.

In turn, traditional business loans are more affordable, as they have lower interest rates and longer repayment terms.

No-doc loans come with much higher interest rates, have repayment terms that are as short as 12 weeks and have more frequent payment schedules, making them an easily worse long-term financing solution.

However, if you are in need of emergency cash, or have a less-than-perfect credit profile and a short business revenue history, no-doc loans can be a legitimate solution to your financing needs.

Types of No-Doc Business Loans

These loans come in several different forms, all of which can be secured with minimal paperwork.

Unsecured Short-Term Loans

These loans usually don’t require hard collateral like real estate or heavy equipment, and are funded rather quickly, with some lenders providing funds within the same business day.

Unsecured short-term loans usually go up to $250,000, and have repayment terms that range from a few months to 2 years, but come with extremely high interest rates as the result of requiring no collateral.

This option is therefore far from ideal, but can still be useful, especially if you need a quick cash injection that you plan to pay off quickly.

Business Lines of Credit

A business line of credit is a great option, even when considering that taking out one online comes with higher rates and fees than what you would get from a prime bank.

This is due to the fact that you pay interest only on what you borrow from the credit line, working in a similar manner as a typical credit card, only with a set limit.

Business lines of credit can range up to $150,000 or more, and are a good choice for working capital gaps.

Invoice Factoring

While not technically a loan, invoice factoring can be another good way to get quick cash for your business. 

You sell your unpaid invoices to a factoring company at a discount, and get 80% to 90% of the invoice’s original value upfront, while the factoring company collects on the invoice from your customer, and once the customer pays, the remaining balance minus factoring fees gets released to you.

Invoice Financing

Similar to factoring, invoice financing involves using your outstanding invoices as collateral. However, you don’t sell the invoices themselves. 

Instead, a lender advances you money, and you remain responsible for collecting payment from your customers.

The documentation needed here is minimal, but you might need to link your invoicing software and provide a basic bank statement. Funding speed is fast as well, as you usually get funds within 24 hours of submission.

Merchant Cash Advances

A merchant cash advance (MCA) can provide quick funds in exchange for a percentage of your ongoing credit or debit card receipts. 

While MCAs can certainly be life-savers in a business emergency, they are also a highly costly option and can create a dangerous cycle of debt if your business is already struggling. 

Therefore, we’d recommend that you consider a merchant cash advance only as a last resort.

Pros and Cons of No-Doc Business Loans

These loans come with obvious advantages, but you’ll also want to weigh their disadvantages carefully.

Alternative Financing Options

If you’re unsure that these types of loans are a good option, and want to look at some viable alternatives for your business, here are a few venues you can consider:

• Business Credit Cards: These can be a solid option if you have a good credit score, as a lot of cards today come with promotional 0% APR periods that last for several months. Business credit cards also have minimal requirements and are fairly easy to apply for.
• Microloans: Nonprofits and community lenders sometimes grant smaller microloans with slightly more paperwork than a no-doc loan but with more favorable terms.
• Equipment Financing: If you need funds specifically for equipment, securing the loan against the equipment itself can get you lower interest rates.
• SBA Loans: Lastly, you might just go with an option that requires more paperwork, as SBA loans cannot be matched in terms of rates and repayment terms.

Final Thoughts

As you can see, no-doc business loans can definitely be a legitimate financing option for those business owners who require access to fast capital, and especially those that do not meet the more rigorous standards of traditional bank loans.

However, the easy application process comes at a high cost here, as these loans carry significantly higher rates, all while coming with much shorter repayment schedules.

Therefore, it is crucial that you evaluate if your business can sustain these costs in the short run, and if the capital you borrow can be put to good use before you commit yourself to such a loan. 

If you do want to go with this financing route, always make sure to compare offers from as many different lenders as you can, and read the fine print to fully understand the terms of the loan before signing on the dotted line.