Difference between low docs and bad credit equipment finance

Many of the terms used in the lending sector can lead to confusion and misunderstandings for business owners. Misunderstandings which can result in a reticence to even apply for finance for fear of being only eligible for extremely high interest rate loans. One of the common misconceptions is around low docs and bad credit loans. There is a clear difference between low docs loans and bad credit equipment finance in the definition, the conditions around the loan and the interest rate which can be expected.

As specialists lending for all types of business equipment, Jade Equipment Finance provides both Low Docs and No Docs Equipment Finance and can assist in many instances, businesses with bad credit. We set out the details around each of these loan categories including eligibility and what loan applicants may expect to be offered in a loan from our lenders.

Low Docs and No Doc Loans

No Doc and Low Docs Equipment Finance describes essentially the position of the business that is applying for the loan. It means the business does not have all or any of the financial documentation and trading records that are required to complete a standard business finance application.

This documentation or docs can include records such as BAS statements, business tax returns, profit and loss statements, business accounts such as an accountant would prepare annually and possibly trading forecasts.

Businesses that have been operational for some time, even as low as a year, will have acquired these documents. Businesses that are just setting up or have only been operating for a short time would not have these records.

New and start-up businesses are the types of operations that typically seek low doc and no doc equipment finance. But just because a business is relatively new does not by definition mean that business has bad credit or a poor credit score.

Consider a few examples:-

  • It the business is being established as an owner-operator, sole trader or a 1-2 director business, the credit profile of the business owners can be assessed by lenders. The business owners may have stellar credit scores and with a condition of the loan being a guarantee by the owners or additional security provided by the owners, a good interest rate loan can be achieved.
  • A new business may be being established by an individual that previously owned and operated very successful enterprises with good credit rating. Possibly those previous businesses were closed or ceased operating while in a good credit position. The business may have been sold, a partnership dissolved or the owner closed due to a desire for a change of direction.

These are just two examples of businesses that may require a low docs or no doc equipment loan but have good credit. While some of our lenders can include additional conditions on these types of loans such as requesting additional security to the goods being acquired or limiting the total loan amount, the loans can be achieved at cheap interest rates.

Bad Credit Equipment Finance

Bad credit finance is sought by business owners that have a poor credit profile or bad credit rating. While being in this bad credit position, the business may have all the financial records and docs to fully complete the standard business finance application. To have acquired a bad credit rating in many ways presumes the business has been operating for a period of time. They have all the docs so they don’t need a low doc or no doc loan.

Bad credit is a challenging position for a business as it does raise barriers and obstacles to lending. Not all banks and lenders will offer bad credit equipment loans in their portfolio. Assessing the applicant as a bad or poor risk and advising that the application is rejected.

Typically and very commonly, those in this position will apply to many lenders, over and over, in an attempt to be offered a loan. This practice unfortunately can worsen the situation. All those loan applications are reported to credit agencies and can appear as a negative on a credit profile.

Out of desperation, some will be enticed into exorbitantly high interest rate loans which are simply not sustainable for the business. Resulting in eventual default and a furthering worsening of the credit rating.

The situation or circumstances which led to the bad credit position can be significant to the lender when assessing an application. Lenders may be understanding of the circumstances and applicants may improve their prospects by having full documentation or records to validate their reasons.

Engaging with a broker-style lender such as Jade Equipment Finance can be of great benefit for business requiring bad credit finance. We are accredited with a selection of specialist non-bank lenders that can be more flexible and negotiable when assessing bad credit equipment loan applications.

We have the negotiating skills and bargaining power and the connections required to assist those seeking bad credit finance. While not all applications are successful, not all are rejected.

If made a loan offer, bad credit equipment finance applicants can expect that offer to be at a higher interest rate than the advertised rates due to the higher risk assessment. There may also be additional conditions attached to the finance including additional security required, limits on borrowing amounts and terms and possibly regular reviews.

Finance Products Available

When approved for finance, both bad credit and low doc loans are available for:-

  • Chattel Mortgage
  • Lease
  • Hire Purchase
  • Rental

Businesses seeking either bad credit or low doc finance are still welcome to use our repayments calculators but with the awareness that the rate offered may differ from our current rates.

There is a significant difference between bad credit and low doc loans but both are achievable and our consultants are available to assist businesses requiring these types of finance.

Contact Jade Equipment Finance on 1300 000 003 to discuss bad credit or low doc equipment finance.