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A Focus on Low Doc Loans Through Tier 2 and 3 Style Lending

The big four banks in Australia. Westpac, Commonwealth, ANZ, NAB.

As the acquisition of business loans becomes harder each year, the ability of small and medium-sized enterprises to purchase properties and business-related resources with the assistance of the traditional lending channels has become increasingly rare. Unfortunately, the Big Four banks were embroiled in a scandal that involved their exploitation of low doc loans users, causing regulatory bodies to clamp down on their irresponsible lending tendencies. New regulations have made traditional banks put potential loanees through rigorous application processes and charge more for their loans, and they are far less generous with dishing them out.

Tier 2 and 3 lenders have filled the void in the market by offering private and P2P lending alternatives to traditional loans and mortgages, looking to assist Australians establish their businesses, boosting the economy and breaking the dominance of the Big Four over the nation’s banking sector. And, our team of experts at Acumen Finance is here to explain exactly what Tier 2 and 3 lending firms can do for you.

Understanding Low Doc Loans

The Low Documentation (Low Doc) loan was introduced to the Australian lending scene in the late ‘90s by non-bank, or Tier 2, lenders and have since been capitalised on by Tier 3, private lending firms, too. They filled a void in the financial market that has been excluded from the sphere of mainstream borrowing and provides a viable way for self-employed and small- and medium-sized business owners to access capital - capital that can be accessed without possession of the standard documentation that the Big Four banks require for loan and mortgage applications.

They come in handy for those who need to provide alternative forms of documentation like self-employed Australian’s who lack PAYG slips or new business owners who don’t have archived tax returns and financial statements which the banks demand to see in order to validate credible loanees, for the sake of responsible lending initiatives and regulations.

The low doc loan has revolutionised the lending scene in Australia in many regards by being less stringent in their eligibility criteria, subsequently having wider-coverage and making loans more accessible on the national markets. However, due to the nature of its flexibility and convenience, a low doc loan tends to command higher interest rates as well as demanding larger securing deposits.

A Breakdown

Individual Tier 2 and 3 lenders will have different criteria and qualifications for their loans and, even though they are far laxer when it comes to extensive financial records, both will likely require some form of proof-of-income. Business owners may be expected to sign an income declaration that verifies their existing business income to date, for example. Some lenders may also expect business owners to provide letters of confirmation from accountants, Business Activity Statements and/or bank account statements. 

The easiest way to acquire any type of loan is, of course, to have financial records that prove your ability to repay with interest on top. However, in the case that an individual or business does not possess this level of documentation, many Tier 2 and 3 lenders will often offer low doc loans including asset-style loans and self-certified mortgages based on the merit of the deal itself. The beauty of both private lending or P2P lending firms is that they are far less-stringently regulated when compared to the Big Four and other traditional banking systems, meaning that they are able to create bespoke deals to fit the loanee’s needs. 

Let’s take a look at what an asset-style loan and self-certified mortgage actually are.

Asset-Style Loans

Asset-based lending, in this scenario, is when a Tier 2 or 3 lender offers you a loan which is secured by an asset rather than proof of financial capability. These loans are usually tied to business equipment, inventory, machinery and potentially, accounts receivable. 

Self-Certified Mortgages

Self-certified mortgages are provided by Tier 3 lenders who are unregulated in their lending capabilities. Self-cert’s, as they are also known, enable businesses and individuals to borrow money without having to prove their income. 

Tier 2 and Tier 3 Lending

It is important to remember that Tier 2 lenders, while far more flexible than Tier 1 traditional lenders, are far more limited than Tier 3 private lenders. 

The Tier 2, non-bank, market is regulated by the Australian Securities and Investments Commission (ASIC), which means that this type of lender does not have a banking license, but they are Authorised Deposit-taking Institutions, who are authorised to conduct banking business by the Banking Act of 1959. 
ASIC regulations allow Tier 2 lenders to provide for a far wider array of loanees in comparison to APRA-regulated Tier 1 lenders and are able to offer loans equal-to or higher-than the Big Four banks due to their APRA limitations. The scope of Tier 2 lenders is broader, and their rates can be competitive with Tier 1 banks when the convenience of flexibility is taken into account.

Tier 3 lenders are entirely unregulated and, subsequently, far more open to low doc loans and even no doc loans on some, rarer occasions; these sorts of agreements are at the discretion of the lender ─ which is the nature of P2P lending. There are far fewer loops for applicants to jump through in this financial market and lenders are far more likely to judge your proposal on its merits, measuring the risk of the loan based on plans and projections rather than requesting years of financial documentation to prove yourself worthy of their services. 

At Acumen Finance we know exactly who will and will not lend based on a whole variety of parameters, meaning that we can pair you with the perfect Tier 2 or 3 lender to service your financial needs. Our knowledge of the financial markets allows our team of specialists to pinpoint which Tier 2 lenders are willing to lend higher sums of money on low doc loans, and we understand who will or will not offer you favourable rates.

Fortunately, if you use our services, we haven’t got a ‘maximum’ loan size. Check out our portfolio to see how our network of underwriters, ranging from Tier 1 to Tier 3, have already provided businesses with asset-style loans worth hundreds-of-millions within a short space of time. And, if you need assistance with obtaining similar sums of money or just fancy and advisory chat with experts-in-the-field, why not drop our Acumen experts a line? We’ll find the perfect solution to uncap your potential.