It can be incredibly difficult to get finance through a bank or reputable lender, especially if you are self employed or have a variable income. This can be very frustrating when you know you are able to make the repayments. Oftentimes, as a business owner, you want to grow or generate other forms of income through buildings. But without finance, this can be a challenge. However, there are options for you, in the form of no doc commercial loans. If you haven’t heard of these before, keep reading to find out everything you need to know about them.
How do no doc commercial loans work?
As you probably already know, this form of finance differs from other types due to the fact that you do not need to provide much documentation to support your application. Essentially, you will not need to give proof of income in the form of tax returns, business bank statements or letters from an accountant to apply and get approved. But how does borrowing money this way actually work? Borrowing money this way is normally described as an asset lend due to the fact the lender is relying on the established value of the security rather than the financial security of your situation. So, in order to obtain this type of finance you will often just have to pen your name to a declaration confirming that you understand the clauses, you are knowledgeable of the repayments and that you can afford the repayments. It is unlikely that you will have to state your income, however, if you do, you may be entitled to a better interest rate.
Does my credit rating matter?
This depends on who you are borrowing the money from as some lenders will opt to look into your credit history, whereas others will not. As no doc commercial loans are an asset lend, having a good credit rating is less important than it would be with the usual finance options. If you do have a good credit rating, you are likely to get approved for finance through a mainstream lender; these lenders offer better interest rates, so this may be a better option for you.
What types of property can I buy?
Commercial no doc loans are designed to enable people to purchase profitable buildings. Therefore, you will be able to use the money you have borrowed to buy commercial properties for purpose of investment, investment in shares and for business purposes which also includes working capital. If you are unsure if the building you wish to purchase falls under one of these categories, it is advised that you speak to a specialist. There are, however, buildings that you are not able to buy using these funds, such as residential investment properties.
How much can I borrow?
If the building you wish to buy is eligible under no doc commercial loans, you are probably wondering how much you will be able to borrow. So, for this type of finance, in which you do not need to provide any proof of income, you will be allowed to borrow up to 65% of the property value. However, just because this is the amount you are allowed to borrow, this does not necessarily mean it is the amount you will be offered. As this is considered high risk to the lender, they may offer you less, but this will depend on your assets and situation. As a general rule, the more your current assets are worth, the closer to 65% of the value you will be able to borrow. In some cases, if your asset value is lower, but you can provide proof of income, you will still be offered a large amount.
What are the interest rates?
In general, no doc commercial loans have higher interest rates than a standard finance option. This is simply because it is a higher risk to the lender. Often, the interest rate will be around 3%-4% higher than you would get through a mainstream lender. However, this does vary depending on how much you are borrowing, your credit history and the risk of the application.