As specialists in business finance, we appreciate that some of the terminology used by the finance lending sector can be confusing to many outside of the industry. But loan applicants should be well-informed around all finance decisions and we provide these informative articles to increase the understanding of those seeking finance. An area of potential confusion in business lending is the difference between bad credit finance and no docs loans.
These are both specialist areas of business lending which not all lenders offer but which Jade Finance does include in our business loan portfolio.
Is bad credit finance the same as do docs loans? No. There are clear differences in regard to the criteria and eligibility for loan approval, conditions that lenders may attach to the loan and the interest rates achievable on the loans.
For businesses requiring a no docs or low docs loan or bad credit finance, it can be extremely helpful to understand the differences between these loans so they can access the appropriate lending services.
Differentiating Bad Credit from No Docs Business Loans
Both bad credit finance and no docs loans are not actually loans despite the reference made to each as such in the lender market. These references are descriptions of the type of loan application that is the business that is applying for the finance.
- Bad or poor credit means the business has a poor credit rating and credit score. This situation can occur through a range of scenarios. Defaulting or being late to make payments on loans and credit accounts is one of the more common reasons that a business would develop a poor credit rating. When a business fails to meet payment schedules for loans, credit cards and other accounts, the finance companies and/or provider can report the occurrence to credit reporting agencies. This is entered onto a credit report and can result in a downgrading of a credit rating.
- Businesses seeking no docs or low doc finance are those that do not have the finance accounts, paperwork and documents around their trading history that are requested by most banks and lenders to meet the business finance application criteria.
To illustrate how these categories of loan applicants clearly differ, consider these circumstances:-
Example A: A company has been operating for some time and as such as financial accounts, tax returns, BAS statements and other documents supporting their trading history going back several years. At some point under whatever circumstances, the business acquires a poor or bad credit rating. The business owner then needs to apply for finance to purchase new vehicles or equipment.
The business has all the documentation required to complete the loan application so they are not categorised as a low docs applicant. But they do have a bad credit rating. So they require a bad credit loan.
Example B: An individual decides to set up a new business and require finance to purchase equipment for that business. As this is a new operation they do not have the financial records or tax records to meet the requirements of a business loan application. So they require a low docs loan.
When it comes to assessing the credit rating of a new business, it is quite common for lenders to assess the personal financial situation and credit rating of the individual business owner(s). The owner may have an excellent credit profile and good credit score. As such they would not require a bad credit loan.
So bad credit applicants can have full documentation and low doc applicants can have a good credit rating. Credit profiles and scores can be addressed with errors repaired.
Handling both these types of loan applications can require specialist expertise as not all lenders off these types of loans. Jade Finance has access to lenders that do consider low docs and bad credit applications and can make offers of workable, cost-effective finance.
Additional conditions can be attached to these types of loans and the interest rate offered may vary from advertised rates. .
If a business is approved as a bad credit applicant or for a low doc loan, they can select the appropriate finance product to suit their requirements. In selecting the loan type, business owners are strongly recommended to consult with their accountant to ensure the features and benefits of the loan product suit their accounting method and business objectives.
If you require finance and you don’t fully understand every detail and term relating to loans it should not be a deterrent to applying for or achieving quality, workable loans. The expertise of the team at Jade Finance is suited to assisting businesses in many circumstances to achieve cost-effective finance and loans for many purposes.
Contact Jade Finance 1300 000 008 to discuss how we can assist you with a bad credit loan or low doc finance.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.