Commercial Loans With No Financials – Is It Possible?

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TRADITIONALLY, for any business or commercial loan, most lenders will require at least two year’s past tax returns and financials to establish servicing capacity.

For some borrowers, this is either not desirable or not possible. And so, here is a summary of several loans that could be available for such a borrower; plus how those loans may also apply to you, as a commercial investor.

Low-Doc Loan

A Low-Doc loan is a commercial loan product, where financials are not provided for the purposes of servicing – instead the income is self-declared. However, most lenders will also require supplementary evidence of income in the form of an accountant’s letter, BAS statements or business bank statements.

The pricing for these products is generally higher than full financial loans; however, they are priced on risk.

So, if the borrower puts in more equity in a transaction, the differential is not that great. And there are products at lower LVR’s, which are priced competitively against full financial products.

As the borrower, you will normally need to have an ABN registered for at least 12 months (some lenders will require 2 years).

Some of the major banks have brought in Low-Doc products over recent years for smaller commercial transactions, as part of their push to increase lending to small business.

It is one of the few areas where we have seen a loosening in credit regulations. For a commercial investor, this may suit self-employed borrowers who are purchasing properties that are not tenanted – and therefore, do not have an immediate income.

Lease-Doc Loans

Lease-doc products are where servicing for a commercial property transaction is covered solely by rental income from the property itself.

These loans are usually restricted to 65% LVR maximum; and are normally required to meet interest coverage ratios of at least 1.25 times from the rental. This can inhibit property purchases for properties with lower rental returns to lesser LVR’s.

Major lenders have pulled back on these products lately; but there are still some products around, outside of the banks.

No-Doc loans

No-Doc loans require no financials, no income declaration and undergo no servicing assessment. They are true “asset lends”.

There is a large variation in pricing and terms of these loans; but in general, you are looking at 65% LVR maximums and the loan terms are usually short-term (ie: 12 months or less). And you will need to define an exit strategy for these loans.

If you have good credit and are borrowing at a lower LVR, there are some reasonable rates available. It may suit some investors looking to acquire a property with vacant possession; and then, tenant it and achieve a higher valuation.

Short-Term Loan

While “Short-Term Loans” is a broad term encompassing any finance facility that is over a short term … it will normally refer to a private loan, which is lent at high interest rates for 6 months or less.

Security can be a first mortgage, a registered 2nd mortgage or even, an unregistered 2nd mortgage. And mostly, these loans are for an emergency such as an imminent property settlement or completion of a development.

Furthermore, they are usually settled in a very quick timeframe; but they can be very expensive (around 2% per month). Plus, they need to be for business use with a defined exit strategy.

There are a surprisingly large number of situations requiring this sort of lending. However, they do need to be approached with due caution – as the costs can quickly become unmanageable, if a quick exit isn’t achieved.

Bottom Line: As always, if you are considering using any of these products, please make sure you receive appropriate advice. And always ensure they are suitable for your particular situation.


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