A no doc business line of credit is one of most accessible sources of funding for startup entrepreneurs and micro-enterprises. It works for nearly any business. For new and growing businesses, it can be a lifesaver. During those times, it’s a challenge for lending institutions to take a risk. They want you to prove yourself first through revenue, assets, and strong credit. When you don’t have those things, rely on a more lenient option like a no doc business line of credit.
Depending on why you need the funds, it could be the perfect fit. Most all businesses need cash flow or working capital to be successful. Getting the line of credit is easier, but you still need to meet requirements. That’s why I’m here to help you learn about the no doc business line of credit. You’ll find out what it is, why you need it, and how to get it.
What is a No Doc Business Line of Credit?
Simply put, a no doc business line of credit is a revolving source of funds (sometimes also called a real estate line of credit by real estate entrepreneurs). It’s unsecured debt you borrow from in increments and repay in installments. In other words, you don’t need collateral or assets to get approved. Unlike a loan that’s a one-time deal, this business line of credit lasts from 90 days to many years. It depends on how long you or your lender want to continue the agreement. You don’t have to reapply during the existence of your line of credit.
Here’s How it Works
Think of a no doc business line of credit as a credit card with a large limit. Once you’re approved, you’re assigned a limit ranging from a few thousand to a few million. If you’re just starting, you could get up to $250,000 with multiple credit lines. It depends on your personal credit activity. You can use some of the credit limit and repay it. As you make the payments, your credit limit gets closer to the original amount. With consistent on-time payments, you can build business credit and increase your limit.
Benefits of a No Doc Business Line of Credit for Small Businesses
Getting this type of unsecured financing comes with several handy benefits. Especially for startups and growing companies. That’s why almost 90% of small businesses have it in their financial portfolio, according to the National Small Business Association. It seems to be working for the majority as an option to handle short term needs. If you’re not convinced by what it is and how it works, look at these benefits.
Rewards on Purchases
Like with credit cards, some lines of credit give back to their clients. Making certain business related purchases can put money in your pocket. If you’re traveling for business, you may get cash back or discounts for using your line of credit. Office supplies, gas, and plane tickets are just a few items that you may get a deal on using your no doc business line of credit.
Building Business Credit
It takes time to build business credit. That’s one of the reasons many lenders don’t review business credit to make decisions. Many vendors or lending institutions don’t report on their own. You’ll have to request it. Still, it’s important to start the process of building credit separate from your personal report. If you ever plan to expand, your business credit score will matter.
You also don’t want to put too much strain on your personal credit. Financial needs for a business are often much larger than personal ones. Over extending personal credit can affect your score and livelihood. Managing a no doc business line of credit will help you start building credit separate from your personal report. That way lenders may not need person credit information for business lending.
You don’t have to secure a no doc business line of credit with collateral. That’s one thing that makes it easier for startups to get it. Most startups are still working on building the assets lenders look for. With this line of credit, there’s no need to risk losing assets in the early stages of your business.
Access to Higher Credit Limits
Credit cards are a form of revolving credit just like a no doc business line of credit. The difference is there may be limits on the amount you can get approved for. This is especially true in the beginning. The business line of credit may give you access to a larger amount of credit. Business credit lines can have limits into the six figures, but startups may get $20,000 or more. If you make your payments on time and keep your balance below 30%, you may qualify for an increase. That will help you make larger business transactions without exceeding your debt ratio.
Isn’t it the Same as an Unsecured Business Loan?
Both types of financing are unsecured, but they’re not exactly the same. Loans are long term debt and lines of credit are short term. With an unsecured business loan, the account closes at maturity. If you want access to more funds, you must apply for a new loan. These factors make a difference in the interest rate between the two options. Lenders also aren’t as lenient when issuing installment loans without collateral.
Businesses should also plan carefully when using each type of unsecured debt. No doc business lines of credit work best with frequent, small purchases. Invest the funds in areas that allow a quick return. Using the funds to complete purchase orders would be ideal. To buy large equipment or expand, an unsecured business loan is a better option.
How to Get Approved for a No Doc Business Line of Credit
Businesses access this source of funding through traditional and non-traditional lenders. To qualify you don’t need extensive business history, but your personal credit history does matter. It doesn’t have to be perfect, but you’ll need to show consistency in maintaining credit and paying your bills on time. To qualify for a no doc business line of credit, lenders will want to see good personal credit history for the last five years.
Specifically, you should have at least one credit card in your name with a balance of at least $5,000. The credit card should be open and have at least a year worth of activity. Lenders want to see how you handle revolving credit. Credit cards are the most common form of revolving debt, so it’s a must if you expect to be approved.
Best Practices to Prepare for a No Doc Business Line of Credit
There are a few guidelines you’ll want to follow before and after getting your line of credit. If you maintain healthy credit habits, you won’t have a problem once you’re approved.
Use Your Credit Wisely
Credit works for you and your business if you use it correctly. Don’t abuse credit cards by overspending. Never max them out. That sends a message to creditors that you can’t handle credit responsibly. It’s best to keep your credit usage around 30%. If you have a credit limit of $5,000, you shouldn’t use more than $1,500 of your limit. That will keep you from maxing the card and keep your debt ratio intact.
Pay Your Bills
If you expect to build your credit and score, you must meet payment obligations. Avoid missed payments or late payments. This only leads to a cycle of late fees, higher interest, and penalties. That can lower your score and blemish your credit history, making it less likely for lenders to extend credit. It’s good practice not to carry a balance by paying off your statement each time. If you can’t pay the balance in full, try to make more than the minimum payment. In situations, where business is slow or finances are tight, make at least the minimum payment to avoid falling behind.
How Can a Startup Get a No Doc Business Line of Credit?
Because approval doesn’t rely on business activity, it’s simple. The business owner or operator needs to have good personal credit. Make sure your credit report and financials are solid before applying. Bankruptcies and liens are prohibited. You’ll need to do what’s necessary to clear those up first. One of the main things lenders review is your credit card activity. They want to see that you’ve used the card responsibly for at least a years.
Advantages and Disadvantages of a No Doc Business Line of Credit for Startups
During startup phase, getting funding isn’t easy. You’re working on proving yourself while getting established. With minimal cash or assets, you don’t have the collateral necessary to widen your loan options. Unless you have a rich uncle who adores you, a no doc business line of credit could be your best option. They’re flexible and have quick, easy approval. Still this form of financing has its pros and cons.
- 0% interest during Introductory Period (can last up to 2 years depending on the lender)
- No business credit necessary
- Revolving credit
- Lenient approval
- Flexible payment options
- Resource for cash flow
- Builds credit
- Good emergency reserve
- Higher limit than credit cards
- Higher interest and fees (after introductory period ends)
- Short term financing
- Should have quick repayment
- Not a good source for some business needs
Are There Limits on How a Business Can Use No Doc Business Line of Credit?
There are no strict stipulations did how to use a no doc business line of credit. You can spend the money on your business however you want. Still, proceed with caution. Never look at the line of credit as a cash cow or spending money. Instead, see it as an emergency fund. If you don’t have the cash flow you need, it’s there. If you’re a growing business, it’s an option to get capital and build business credit. Keeping this principle in mind could save you money overtime.
Here are some suggestions for how to use a no doc business line of credit:
- Fill purchase orders
- Get supplies for immediate resale
- Pay contractors
- Pay for marketing and advertising
- Access working capital
- Cover travel expenses
Things to Remember When Applying for a No Doc Business Line of Credit
Not all business lines of credit are the same. That goes for the lenders too. The goal of accessing the funding is to keep your business going. That means you need to do your research and decide carefully to protect growing assets. The most important thing is to be careful when searching for lenders, especially online. Many will claim to offer no doc business lines of credit, but they actually aren’t unsecured.
Review your lending agreement carefully. Some companies use UCC liens even as they claim to offer unsecured debt. When looking into products like merchants cash advances beware. They’re easy to get, but they are not truly unsecured. Most authentic no doc business lines of credit come from banks. The best way to prevent your business from risk is by working with an experienced lending expert.
How Lending Experts Can Help
Lending experts are experienced in dealing with the no doc business lines of credit. There are different types with different requirements for access. Fees and interest can also add up depending on the plan. Having a lending expert will help you avoid piling up debt. They may be able to get you a low or no interest line of credit. Some plans have a 0% introductory rate for the first 6-12 months. Make sure you choose the right expert to help.
A good no doc business line of credit expert will advise you on how to build business credit with the funding vehicle. They will also help you begin separating your personal credit from the business. This is important for the business finances to expand while keeping your personal credit intact. The right lending expert will also help you avoid merchants who don’t have your best interest in mind. They’ll know where you should apply for a business line of credit.
Apply for a No Doc Business Line of Credit
You’ve learned the ins and outs of the no doc business line of credit. Now, It’s time to make it a part of your business’s long term financial strategy. If you meet the personal credit requirements, you’re ready to apply. Working with an experienced team that specializes in getting unsecured capital for small businesses and entrepreneurs is the key to getting approved. Pre-apply for small business loans and a no doc business line of credit online here. An industry recognized expert will contact you to get started.
She has spent the last decade assisting entrepreneurs with starting new businesses, obtaining startup and working capital and growing their customer base.
She enjoys writing about her experiences as an entrepreneur and using data and information from reliable sources to back up what she writes about. Through her writing she aims to educate other entrepreneurs on how to obtain capital and build successful businesses doing what they love.