A No-Doc or Documentation Loan is a business loan that requires minimal documentation. It also has a quick processing time. However, the name can be misleading. Documentation is required but may be more manageable than a traditional business loan. Such loans are sometimes available shortly after a request is made.
The No-Doc Business Loan is an alternative to traditional business loans. The processing speed is excellent for raising quick cash but comes with a cost. Interest rates are higher, repayment periods are shorter, and the loan amount is smaller.
Traditional business loans usually require applicants to submit personal or company financial statements. They may also be required to provide business certificates, such as incorporation deeds or trade licenses. Tax returns from the last two or three fiscal years, PAN cards for their companies, and other detailed documentation. Alternative financing, i.e., The No-Doc Loan, is often used by small business owners, self-employed people, and entrepreneurs just starting a new business. It is sometimes used by business owners that meet the criteria for eligibility but need more time to process traditional business loans.
There are several types of No-doc Business Loans. They include Merchant Cash Advances, Invoice Financing, and Business Lines of Credit. These loans are offered without collateral based on assets, invoice payment histories, and business credit card volume.
Merchant Cash Advance (MCA):
As the name implies, an MCA is a cash advance based on future sales projections and is not a traditional loan. Asset-based lending is another name for this type of loan. Credit card sales, bank statements, and other financial records are used to assess the business’s ability to repay. The borrower receives a lump sum. The repayments are structured based on a percentage of future expected sales. These payments can be made weekly or daily. Short-Term Business Loans
It is similar to the traditional Business Loan In some ways. The lender transfers the agreed-upon loan amount to the borrower. Both the repayment period and installment are set. The repayment period could range from a few weeks to two or even three years. The interest rates, however, are usually higher than traditional loans but lower than MCAs. MCAs require more documentation than conventional loans.
This is an asset-based loan or borrowing. Unpaid invoices secure the loan. This type of loan is offered to B2B companies with creditworthy customers when facing a cash crisis due to delayed payments. The loan amounts can range between 70% and 90% of the invoice value. Customers of lenders are expected to pay directly to the lending institution until the loan amount and interest charges have been cleared. Interest rates can range from 1% up to 5% per month.
Business Line of Credit
It is similar to an overdraft and allows borrowers to access revolving funding subject to agreed-upon limits. The borrower can use the funds as needed and only pay interest on the amount used. The repayments are made according to the contract with the Business Line of Credit Service Provider. These are usually made monthly. If refunds are made regularly, the business can use the credit limit up to the agreed-upon amount as many times as needed during the agreement term. The interest rates are generally lower than those of Business Credit Cards.No Doc Business loans are an option for businesses that need quick funding but need more time to complete the traditional loan application or cannot meet the requirements. Our blog series on Business Loans may help you better understand business loans. If this is the best option, you can apply for it. After evaluating interest rates, eligibility requirements, and terms and conditions attached to each No Doc Business Loan type, you can apply for the No Doc Business Loan. Choose the one that best suits your business. You must be able to pay back the loan as quickly as possible, despite the higher interest rates. The cost of a loan can severely impact your company’s profitability if you do not pay it back. If time is fine, consider government mudra loans and other financing schemes available to small and medium-sized businesses.