Are you finance ready for 2024?

When it comes to being finance ready, you have two main options when supplying documentation to lenders: low documentation and high documentation. As we’ve entered 2024, lenders will now request your final accountant prepared financials for 2023.

Let’s explore what each option entails:

1. Low Documentation:

If your 2023 accountant prepared financials aren’t prepared, this option might be right for you. Low documentation, also known as low doc loans, are designed for borrowers who have may not have full documentation ready. This often happens when you apply for a loan and your financials may not have been lodged yet with the ATO. This option is typically available for self-employed individuals, small to medium business owners. Requirements for low documentation loans vary among lenders, but they generally involve providing:

• Basic income evidence: This could include bank statements, business activity statements (BAS) and or accountant declaration
• Self-declaration of income: A declaration stating your income without extensive supporting documentation.

Advantages of low documentation:

• Simplicity and convenience: Low documentation loans offer a streamlined application process, as they require less extensive paperwork.
• Flexibility: These loans cater to borrowers who may have irregular income streams or difficulty producing traditional documentation.

It’s important to note that low documentation loans may come with higher interest rates or stricter lending criteria. Fortunately, there are some products that do not penalise customers with a higher rate.

Lenders may also require larger deposits or impose additional terms to mitigate the higher risk associated with limited documentation.

2. Full Documentation:

Full documentation refers to providing comprehensive and detailed financial documentation to lenders or financial institutions. This typically includes:

• Financial statements: Such as profit and loss, balance sheet and at times cash flow forecast.
• Tax returns: Personal and business tax returns for the past two years.
• Bank statements: Providing a history of your business and personal bank accounts.
• Proof of assets and liabilities: Documents showing your assets (such as property, investments, or equipment) and liabilities (such as loans or debts).
• Business plans: Outlining your company’s objectives, strategies, and financial projections.

Advantages of full documentation:

• Access to better terms: Providing thorough documentation can enhance your credibility with lenders, as it demonstrates transparency and a strong financial position. Lenders may offer more favorable loan terms, such as lower interest rates or higher loan amounts, when you can provide extensive documentation.

Deciding between full documentation and low documentation depends on your specific circumstances and the requirements of lenders. If you have the ability to provide comprehensive financial documentation, it may be advantageous to opt for full documentation to maximize your loan options and secure more favorable terms. However, if providing extensive documentation is challenging, or if you require a quick turn around time, exploring low documentation options could be a viable solution.

At DC Finance we can help you navigate the options and determine the best approach for your individual financial situation and borrowing needs.

Please do not hesitate to contact Richele on (03) 9069 7700 or richele@dandcfinance.com.au