Low doc isn't no doc.
Written for: Business owners, self-employed borrowers and property investors
Some businesses are in better shape than their tax returns show. The last lodged return is a year or more old. The business has grown sharply since. A restructure has split the numbers across entities. Or lodgements have fallen behind while the owner was busy running the business.
Banks usually need full financials: tax returns, financial statements and often more. When those don't show the current picture, the application stalls. Low doc lending exists for that gap.
A low doc loan is assessed on alternative evidence of the business's position, in place of the full set of tax returns and financial statements. It's most common among self-employed borrowers, fast-growing businesses, businesses that have recently restructured or bought another business, and borrowers whose lodgements are behind. Depending on the lender, it can apply to business loans and to commercial property loans.
Low doc isn't no doc. The lender still has to understand the business and be satisfied the loan makes sense. It just accepts different evidence to get there.
Low doc lending carries some baggage, and the history explains why. Before the global financial crisis, low doc and no doc home loans were widely available, in Australia and overseas. In the United States, mortgages written with little or no check on the borrower's income became one of the defining features of the subprime lending that collapsed in 2007–08.
In Australia, the National Consumer Credit Protection Act 2009 brought in responsible lending obligations for consumer credit, and low doc home lending became far less common. Those obligations are built around credit for personal, domestic or household purposes. Business-purpose lending sits outside them, which is one reason low doc remains an established part of commercial and business finance. It's also why the low doc lending discussed here is for commercial and business purposes only.
The lesson the market took from that era is the one that still shapes low doc lending today. The problem was never fewer documents. It was lending with no real evidence at all.
In place of tax returns, lenders typically look at some combination of:
Then come the parts every private lender weighs heavily: the security and the exit. With less paper about the past, lenders lean harder on what they can verify now. The property, what it's worth, and a credible plan to repay. A low doc loan doesn't lower the bar. It moves it, from the paperwork to the security and the exit.
The story matters too. A borrower who can explain clearly why the returns are behind, and what the business looks like today, is far easier to assess than one who can't. If lodgements are behind because of a tax problem, that's usually part of the same conversation. ATO debt and specialist lending covers how lenders approach it.
Less documentation means more uncertainty for the lender, and lenders price uncertainty.
Higher cost. Low doc loans are usually priced above full doc equivalents, with rates and fees reflecting the extra risk.
Lower LVR. Most lenders cap low doc loans at a lower loan-to-value ratio than full doc loans, so more equity is needed in the security. How much can I borrow? explains how LVR works.
Fewer lenders. Not every lender does low doc, and those that do each set their own rules on which documents they accept and how recent they need to be.
For many borrowers, low doc is a stage, not a permanent state. Once returns are lodged and the financials catch up, refinancing to a full doc loan, or back to a bank, is a common exit. The documents change. The questions don't. Whether that path makes sense depends on the business and its numbers, and the borrower's accountant is the right person to advise on it.
We work with more than 70 private and non-bank lenders and stay across what they're funding right now, including which of them assess low doc deals and what evidence each accepts. If your scenario fits, we can connect you with the lenders it suits.
The lender assesses the deal and makes the credit decision. Where a bank is the better fit, it goes through our trusted broker network.
We work on commercial and business-purpose loans only. If you need a home loan, personal loan or any other consumer loan, we'll put you in touch with one of our trusted brokers.
This article is general information only. It isn't financial, credit or legal advice and doesn't take into account anyone's particular circumstances. Lending decisions are made by the lender.
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