Many businesses will be reviewing asset acquisition plans and timing in the wake of the RBA’s May decision and in the lead-up to the RBA Board June meeting where a possible further rise may be announced. But those requiring specialist loan products such as low docs, docs and bad credit business finance may be somewhat unsure of their prospects in securing loans.
Securing low docs, no docs and bad credit loans can always pose issues even when the cash rate is at historic lows and the lending market extremely accommodative. As the cash rate rises and lending rates follow, questions can arise around whether the obstacles for low docs, no docs and bad credit loans will also rise.
In general terms a rise in the cash rate should not impact the basic criteria for low docs, no docs and bad credit business finance but considerations may arise. To clarify the situation we outline how these business loans work, what factors lenders are considering, what loan conditions may be expected and how business owners can still secure affordable loans if in these situations.
Loan Criteria and Eligibility
The basic eligibility criteria for low docs and no docs loans and bad credit finance will not change as a direct outcome of an interest rate rise. However, lenders may tighten some of their own individual lending guidelines.
Low docs and no docs loans refer to finance for businesses without the entirety of the financial accounts and documentation to fully complete a business loan application. With some banks and lenders, that may include a minimum period of trading of 12-24 months. These types of applicants typically fall into the category of those starting out, newly formed or set-up within say the past 12 month period.
By definition, businesses in these situations are not assumed to have bad credit. In fact, they may have a very good credit score. As new businesses, the balance sheet and credit profile of the business owner or the directors may also form part of the application process.
Bad credit finance refers to businesses that have a poor to bad credit rating. This is a more challenging position for acquiring loan approval than low docs/no docs.
Not all banks and lenders will offer bad credit and/or no docs and low docs finance. Businesses requiring this form of finance may benefit greatly by engaging a finance broker like Jade Finance to assist in sourcing finance offers. They have the connections with non-bank lenders that do offer this type of business finance.
Range of Finance Products
The range of business finance products and loan types for all businesses would not be affected by interest rate changes, except of course for the rate itself. The basic features and benefits, including tax deductions, of the finance facilities remain constant. The interest rate applicable to different products does vary. Variations in interest rates are also present across the lending market and for different types of equipment and for different industries.
These points all apply to both businesses with full documentation and good credit as well as for those seeking low docs, no docs and bad credit finance.
Businesses requiring finance for the acquisition of plant, machinery and equipment may achieve better rates and cheaper finance by sourcing access to specialist lenders through their Jade consultant.
Asset Acquisition Loans:-
- Chattel Mortgage
- Hire Purchase
- Lease
- Rent to Own for equipment
General Business Support Finance:-
- Business Overdraft
- Insurance Premium Funding
- Secured and Unsecured Business Loans
- Debtor Invoice Funding
All these finance facilities are available through Jade Finance.
Access to Tax Benefits
When approved for bad credit finance and low docs/no docs loans, businesses are then eligible to take advantage of the tax benefits available either with a particular type of loan or according to certain ATO rulings. Tax benefits in regard to the purchase and GST vary across loan types.
The Instant Asset Write-Off and temporary full expensing tax benefits are available through to 30 June 2023 on eligible asset acquisitions and for eligible businesses. To utilise these accelerated asset depreciation measures, Chattel Mortgage should be chosen as the finance product.
General Considerations
In regard to both low docs/no docs and bad credit loan applicants, there are a number of general issues which may come into consideration when lenders assess the finance applications.
With a rate rise, higher interest rates apply across the board. That results in the total of the finance when interest payable is included, is higher than at lower rates. In some instances, lenders may consider the risk as higher for some applicants and may request the initial loan amount request to be reduced.
The loan amount may be reduced by the business paying a deposit for the purchase or by selecting lower priced vehicles or equipment.
Additional security against finance is typically requested with bad credit and often with no docs and low docs finance. The additional security may be provided through personal property or business owner personal guarantees, depending on individual lender conditions.
Proactive Measures
For all businesses seeking finance, regardless of the general lending rate scenario, sourcing the cheapest rated loan is always a key objective. In order to achieve better interest rate finance, businesses can be proactive in many areas:-
- Maintain a good credit rating by making payments for loans and bills, including supplier invoices, on time.
- Keep debt levels down to improve the balance sheet in regard to assets to liabilities ratio.
- Maintain high quality, accurate, up to date and thorough financial accounts and documentation. Having this information quickly and easily accessible when applying for finance can assist in streamlining and expediting the process and may contribute to a better interest rate.
- Engage with a finance broker that has experience in acquiring the type of finance you require, is fully licenced and has a proven track record of achievement.
- Select a finance broker with extensive and varied lender accreditation to ensure access to a large number of lenders.
Contact Jade Finance 1300 000 008 to source quotes for low docs, no docs and bad credit business 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.
