No doc business loans are a type of business loan where some documents, like financial statements or tax returns, may not be required. These types of loans have the nickname “no doc” which stands for “no documents.” However, this is misleading because almost all loans, whether they’re large or small business loans, will require at least some documentation such as:
- Your business credit score
- Invoices owed (accounts receivable)
- LOI (letter of intent) where a buyer will become a customer once financing is secured
- Cash flow records
- Ownership documentation of assets to be used as collateral
- Other documents to build your creditworthiness
Although a no doc business loan can come from an alternative lender or a bank, they can also be offered as different products like merchant cash advances or invoice factoring. The “no doc” nickname is more of a reference to the fact that less documentation is required to get approved for a business loan or other financing. Typically, these situations require the borrower to have:
- A solid reputation
- A history of borrowing and making on-time payments to lenders
- Other confidence builders, like established cash flow in a business bank account with the lender
No doc business loans get approved more quickly than traditional business loans because there is less paperwork to review, and they are normally short-term business loans, which often means they have higher interest rates with shorter payback periods.
When No Doc Business Loans Are a Good Idea
On the lender’s side, no doc business loans are a good idea when they have a creditworthy borrower who has a history of making on-time payments, or when it is easy to verify the borrower’s cash flow situation to ensure they can make payments on time. If the lender does not feel confident in the borrower’s ability to make payments, extra documentation will be required for approval, making that product a traditional small business loan vs. a no doc business loan.
On the borrower’s side, no doc business loans can make sense if they need quick approvals for time-sensitive situations including:
- Making an offer to buy a competitor when there are multiple companies interested.
- Securing raw materials in bulk when there is a temporary discount.
- Having a surge in demand for a product and needing to restock when suppliers are running out of inventory and there is no time to wait for inventory financing.
- When business financials may look off because real estate professionals are investing in properties, but the properties themselves are being used as collateral and will cover the amount of the loan in case of default.
- Keeping personal finances separate, which is most common with self-employed entrepreneurs, solopreneurs, and business owners with complicated financial situations.
Any situation where the borrower needs fast approval and has a strong reputation, but the financials look more OK than stellar, could be a good one for a no doc business loan.
No Doc Loans vs. Traditional Small Business Loans
Both no doc business loans and traditional small business loans from a large bank provide funds for companies to bridge gaps in cash flow, buy equipment, fund operations, make acquisitions, purchase real estate, and cover other business needs. Take a look at the table below for the differences and similarities between the two.
Please note that the following table provides general information. Each lender will have their own requirements and features.
| No Doc Loans | Traditional Small Business Loans from Large Banks | |
| Approval times | Fast (1 to 2 days) | Slow (Can take weeks) |
| Payback periods | Shorter (often ranging from 6 months to 3 years) | Longer (often ranging from 3 to 10 years) |
| Interest rates | Higher | Lower |
| Flexibility of usage | High | High |
| Ease of getting approved | Varies | Varies |
| Paperwork required | Minimal | Substantial |
| Typical uses | Short-term and immediate needs | Long-term investments |
No doc business loans are great financing solutions for small businesses that need quick access to cash, since these products require less documentation. They’re used to fund immediate expenses and can fall into the categories of either small business loans, merchant cash advances, or invoice factoring in some cases. Although interest rates are generally higher, you typically make fewer payments, which can offset the higher costs and make this a smart financial solution.
SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors.
