What Is a No-Doc Business Loan And Is One Right for Your Business?

No-doc business loans are a type of business financing that do not require a lot of paperwork or lead time to secure. The name is a bit misleading, as most loans still require the submission of at least some documentation, however, these types of loans have fewer or less extensive requirements than traditional bank loans.

It is worth noting that the relative speed and ease of securing a no-doc business loan usually comes with the caveat of high interest rates, short payment terms, and lower loan amounts, among other considerations. This is due to the higher amount of risk that lenders take on in these arrangements.

What Is a No-Doc Business Loan?

A no-doc business loan is a way for business owners to secure financing without having to submit extensive paperwork. Traditional bank loans may ask for documentation such as personal and/or business financial statements, business licenses or certificates, loan application history, tax returns, and other forms and information.

Preparing and submitting the information requested by traditional lenders can often be a lengthy process. By contrast, no-doc business loans offer a relatively quick way for borrowers to gain access to credit, sometimes even within 1 business day of the application.

How Do No-Doc Business Loans Work?

Like any other type of loan, no-doc business loans require the borrower to sign some sort of terms agreement or contract. However, they generally do not entail as much paperwork as traditional forms of lending, in some cases because the application is made online and analyzed by specialized software programs. As such, they may be more suitable for business owners experiencing issues accessing credit or financing by other means, or who need to secure funding quickly.

Some types of no-doc business loans are secured with collateral, while others are unsecured or leveraged against business factors other than assets, such as credit card volumes or customer invoice payment history. Some do not require credit history as part of the application.

Types of No-Doc Business Loans

There are several types of no-doc business loans, which all have slightly different structures and application processes. Contrary to the name, most no-doc business loans do require some sort of documentation on the part of the borrower; however, the requirements are generally less rigorous (and the turnaround time faster) than other types of loans.

Invoice Financing

Also known as accounts receivable financing, invoice financing is a method of obtaining upfront access to credit that is tied to the value of a business’ unpaid invoices. In this type of arrangement, an invoice financing company pays out a loan that covers a certain percentage (usually around 80 to 90%) of the value of the business’ unpaid invoices. Generally, this type of loan is better suited to business-to-business (B2B) companies.

Once the invoice is paid off by the customer, the business is then responsible for repayment to the financing company, with interest. Interest rates for invoice financing vary by industry and situation, with the low end at 1 to 1.5% per month and the high end at 3 to 5% per month.

Merchant Cash Advance

Also known as a business cash advance, this type of financing lends against the value of a business’ debit and credit card transactions.

Merchant cash advance providers pay a lump sum to the business owner, and the repayment is made from future sales. This option is best for businesses with high sales volumes, as repayments are usually taken daily or weekly. Merchant cash advances generally have high APRs, ranging from 35% at the low end to 350% at the high end.

Short-term Business Loan

Short-term business loans, also known as working capital loans, can have repayment terms of three years or less, though they are generally around 12 months or less. Lenders pay a lump sum amount upfront, and borrowers can use it for a variety of purposes. However, since these types of loans have short repayment terms, many require daily or weekly payments and can have high interest rates or factor rates.

Business Line of Credit

In contrast to lump-sum loans, business lines of credit allow borrowers revolving access to credit over a set period of time, similar to a business credit card. However, one benefit to business lines of credit is that can have lower APRs than business credit cards, though they may range anywhere from 8 to 60% or higher. (Lenders are not required to publicly disclose their rates for business lines of credit.)

These types of loans can be secured or unsecured, depending on the amount, though many unsecured lines of credit have variable interest rates. If paid off quickly, business lines of credit can also be helpful in helping a company build a good credit profile.

Advantages and Disadvantages of No-Doc Business Loans

No-doc business loans have several pros and cons that are worth considering when comparing between potential sources of financing.

Advantages include:

• Quick access to credit (sometimes in as little as 1 business day)
• Less rigorous documentation required
• Less extensive requirements in terms of credit score, business age, or revenue, among other considerations
• Convenient application process, with many lenders offering online applications and approvals

Disadvantages include:

• Higher APR, interest, and factor rates and fees 
• Shorter repayment terms, sometimes with daily or weekly payment schedules
• Potentially lower loan amounts than traditional loans

Alternatives to No-Doc Business Loans

Other types of financing that businesses might consider in favor of traditional bank loans include microloans, inventory financing, equipment financing, invoice factoring, business term loans, commercial mortgages, startup loans, business acquisition loans, or business credit cards.

If time or credit history are not an issue, traditional bank loans, especially SBA loans, might be a less expensive option for businesses needing to access credit.

The Bottom Line

No-doc business loans can provide businesses with quick and relatively easy access to credit, but with shorter repayment terms and generally high interest rates. They may be a good option for companies that do not have good or extensive credit history, or businesses for which time is of the essence in securing funding but that have high confidence in their ability to repay and meet the payment deadlines.