Low Doc vs Full Doc Commercial Loans: Key Differences

Getting a loan for your business can be exciting! Maybe you want to hire more staff, increase your inventory, or expand your premises so you have more room for machinery and storage. Either way, you’re going to need funds to do it.

A commercial loan is the way to go, but you’ll need to decide whether you go for a full doc or low doc loan. Repayment plans, interest rates, and your credit score can all impact what type of loan you are able to get for your business.

Do these terms not mean anything to you? Don’t worry–we’ll explain everything you need to know.

What is a Full Doc Loan?

Let’s begin with one of the most common types of commercial loans available–the full doc loan. Full doc is shorthand for ‘full documentation’, which is fairly self-explanatory. These types of loans require a substantial amount of paperwork to authorise, but it’s not without good reason.

Full doc loans are often for large amounts of money with low interest rates, to be paid back over a lengthy time period. Full doc loans are the types you’ll often hear about being needed for a house, although realistically, they can be obtained for a wide range of uses.

Because it is such a large amount of money that is being loaned over a long time, the lender (usually a bank) will need a lot of documentation to make sure you have the ability to pay it all back.

Documentation Needed for a Full Doc Loan

If you want to apply for a full doc loan, here are some of the documents you will need to have on hand.

• Tax returns
• Pay slips
• Bank statements
• Proof of assets
• Business financial statements

These documents demonstrate to the bank that you have both a stable income and a good history of handling your money well, like being able to make your repayments on time and file your taxes correctly.

When to Use a Full Doc Loan

Obtaining a full doc loan will typically involve a substantial amount of time and effort. Because of their better rates and longer repayment time, they’re generally a safer and more manageable option for businesses who need money, but aren’t in a rush.

At Hodgestone Finance, we can help you secure a full doc loan from a reputable big lender. Our preferred financiers for full doc loans include banks like the Commonwealth Bank, Macquarie, Suncorp, Westpac, ANZ, and NAB.

What is a Low Doc Loan?

Low doc commercial loans are another type of loan commonly offered outside of big lenders like banks. Low doc stands for ‘low documentation’, and refers to the fact that, compared to a full doc loan, you don’t need nearly as much paperwork to get your money.

However, because your lender won’t have as much information at their disposal, they are risking a little more in loaning you the money. This means that low doc loans tend to have higher interest rates, and paying back in the long term tends to be more difficult. Instead, low doc loans are more suitable for when you need a quick burst of cash, which you can then pay back over a shorter period of time.

Documentation Needed For a Low Doc Commercial Loan

As you’d expect, the paperwork you’ll need to secure a low doc loan is much less than what is asked for a full doc one. At a commercial loan broker like Hodgestone Finance, we’ll ask for documents like:

• A Business Activity Statement (BAS) This form is submitted to the Australian Taxation Office (ATO) to report business expenses, income, and any tax obligations you have. This includes GST (goods and services tax) and any pay as you go (PAYG) installments or withholding. You can find out more about Business Activity Statements on the ATO’s website.
• An accountant’s statement. This declaration from your accountant will confirm that the business activity, financial status, and the average income that you have all told us are true. Your accountant will need to supply their details as well.

If you’re unsure about what these documents are or how to collect them, feel free to reach out to our team for guidance.

When to Use a Low Doc Commercial Loan

Low doc loans can be appealing due to the speed and ease at which you can acquire one. Here are some situations where you might be looking into this type of loan for commercial use:

• You want to capitalise on an opportunity that has suddenly arisen for your business, but don’t have the current funds to do so.
• You need to quickly replace important equipment that has broken down, which your business cannot do without.
• You want to take advantage of an expected busy season by quickly hiring more staff or getting extra stock.

A reliable commercial loan broker like Hodgestone Finance will be able to match you with suitable non bank lenders, whether you are in Melbourne, Sydney or Brisbane.

For a more in-depth look at this type of loan, please read our blog on What Are the Pros and Cons of Short-Term Loans?

Low Doc vs Full Doc Commercial Loans: Let’s Compare

So, when it comes down to it, what type of loan is best for your business needs? It comes down to a few factors–let’s explore them now.

How quickly do you need the loan?

If you need a reasonable amount of money quickly, then the process of getting a full doc loan may take a little too long. If you need funds to buy something fast, then your best bet will be one of the types of private loans, like a low doc loan. At Hodgestone Finance, we can get low doc commercial loans approved in weeks–sometimes days!

How much documentation can you provide?

If you are an established business with a history of tax payments, growth and success, then you’ll probably have all the documentation needed to secure a great full doc loan through Hodestone Finance. However, if you are a small, new business, or don’t have the best credit history, then you are better off opting for one of our low doc commercial options instead.

How much time do you have to pay back the loan?

Full doc loans can be paid off over several decades if need be, which is why they're so popular for things like home loans. Low doc loans usually need to be paid back much faster, usually within a year. Keep this in mind when choosing your loan type so you don’t run out of time to pay back your lender!

Another point to consider is whether the interest rate is fixed or variable.

• A fixed rate will be decided on at the start of the loan and will remain locked in place for a specific period of time. This could be for one year, or even up to ten years.
• Variable rates are more flexible and can either increase or decrease, depending on external factors like decisions made by the Reserve Bank of Australia. Minimum repayments will increase if your rate goes up, and decrease if it goes down.

What About No Doc Loans?

Also called non-conforming loans, no doc commercial loans (standing for no documentation)  is the loan of choice for business owners who are without any of the required paperwork. Like low doc loans, non-conforming loans have a fast turnaround time, flexibility, and a shorter repayment period.

No doc loans require you to have one thing, though– a suitable Exit Strategy. This could be thought of as a backup payment plan, and could include refinancing your property, verifiable future income, or selling property or equipment. If you aren’t sure what type of Exit Strategy you can provide, a commercial loan broker will be able to help you define yours.

These types of loans are fast to get, but need to be paid back quickly and often have high interest rates, as they are a very risky type of loan for a lender to offer. At Hodgestone Finance, we can help connect you with private lenders in Brisbane, Sydney and Melbourne who can facilitate no doc loans that suit your situation.

Get Your Loan at Hodgestone Finance, Your Local Commercial Loan Broker

Whether you need a lengthy full doc loan or a fast and flexible low doc loan, the brokers at Hodgestone Finance can help you get the private loans you need for your business to succeed. With offices in Melbourne and Sydney, we make it easy to find the perfect loan for your needs.

Get a free quote by filling out our online contact form, or get in touch by calling 1300 463 439 or emailing info@hodgestonefinance.com.au. We’ll perform a no-obligation assessment and guide you through the entire process from start to finish. With over twenty years of experience in the industry, we can secure you the perfect loan no matter where you are located in Australia.