If you own a business, are a freelancer or a gig worker and need to borrow money, you might wonder if you qualify for a personal loan. The answer is probably, but you’ll need to prove your income, and some lenders may be more cautious about self-employed workers.
“Lenders want a guarantee that they’ll get their money back,” explains Zachary Jonas, founder and CEO of Jonas Consulting Group. “They’re looking for proof that you’re making enough money consistently, which is challenging for freelancers, contract workers and gig workers because their income can fluctuate.”
Read on as we explore the ins and outs of loans for the self-employed and a few alternatives.
Because you don’t necessarily work in a job that provides a predictable income, you may need to meet additional requirements and jump through a few more hoops compared to borrowers with a traditional source of income.
When you’re self-employed, a lender may require more documentation to prove your income than it would for other borrowers. This might also depend on the size of the loan you’re seeking.
It’s important to do your research and make sure you have the necessary documentation to apply for a personal loan as a self-employed borrower.
A few issues specific to self-employed borrowers could cause a snag with your loan application.
When you’re self-employed, it’s common to have irregular income. You might have multiple clients, pay schedules can vary or your work may be affected by the seasons or other factors. However, you should be able to overcome this obstacle by providing a few years of tax returns to show you’ve consistently made enough money to afford the loan. It’s also not a bad idea to enlist the services of an accountant, suggests Jonas.
“It’s so helpful to have an accountant even if you are a freelancer because they can keep an organized record of your earnings and tax filings. Most banks also see an accountant as an added source of trust for the loan applicant.”
Self-employed borrowers pay their own income taxes, Social Security, Medicare and self-employment tax, but they can take deductions for business expenses. For example, you may be able to take deductions for a home office if you work out of your house, mileage if you travel for work or other business-related expenses. The result is a lower reported taxable income, which could negatively affect your loan application.
“While deductions are great for lower taxes, they can impact your ability to get a loan. Banks aren’t just looking at your gross income — they want to know what you’re bringing home after all your expenses,” says Jonas. “So let’s say you bring in $25,000 in revenue but have $10,000 worth of deductible expenses. The bank will consider your income as $15,000.”
Here are some things to do to improve your chances of loan approval when you’re self-employed.
Despite your best efforts, getting a personal loan doesn’t always work out. But you have other options to consider.
For self-employed workers looking to borrow a relatively small amount of money — say, $500 or less — a cash advance app may be a good solution, as these have more flexible lending requirements. Cash advance providers typically don’t look at your credit history and don’t charge interest, although there may be some fees associated with the loan.
But keep in mind that some cash advance providers require direct deposit. Depending on how you get paid, you may also want to consider cash advance apps that don’t require direct deposit.
If you don’t need cash in hand, you could apply for a credit card with a 0% introductory rate. For example, if you have a medical bill or need a new furnace, you could put it on a card that has no interest for up to 15 months — or sometimes more — and pay it off before the regular rate kicks in. Credit cards are typically easier to qualify for than a personal loan, but you may need a good credit score.
Homeowners with equity might qualify for a home equity loan or a home equity line of credit (HELOC). These types of financing could be a good option if you need a larger sum, but you may run into some of the same stumbling blocks as personal loans. However, if you own the home with a spouse, you may be able to overcome those obstacles more easily and qualify for a loan using your home as collateral.
Payday loans are short-term, no-credit-check loans that usually top out at $1,000 and may accept self-employed workers. The downside is that these loans are usually very expensive, with APRs in the triple digits, and they’re not available in all states. But, a payday loan may help out in an emergency if you think you can pay it back right away and avoid getting into a cycle of debt.
If you own a car, boat or other item of value, many personal loan lenders offer a secured loan option. Obtaining a loan secured with collateral can be easier to qualify for if your income is somewhat irregular because the loan is less risky for the lender. But if you can’t make your payments, you’ll lose your valuables, and your credit score will take a hit.
Bad credit is often a stumbling block if you need to get a personal loan, but it’s not impossible. You may want to consider a no credit check loan, although that could be a more expensive solution. Another option is to look into lenders that work with bad credit borrowers and consider other factors besides your credit score when determining loan approval.
The number of hours you work is not as important as how much money you bring home. Many freelancers make a great living without putting in 40 hours a week. The main issue is proving you earn enough to repay your loan regardless of how many hours you work.
Lenders want to know that you bring in enough money to make your payments. If you can’t prove your self-employment income, it can be very difficult to qualify for a loan — or one with reasonable rates. However, some lenders may consider other sources of income too. If you bring in enough money from child support, investment income, alimony, retirement income or government benefits, you may still qualify for a loan.
Comparing SoFi and Prosper: Choose the right personal loan based on your needs.
Symple Lending isn’t transparent about its products and services.
A review of FastLoanAdvance shows a lack of transparency about lenders and loan details.
Compare cash advance apps or personal loans as alternatives to allotment loans like Kashable.
Chase doesn’t offer personal loans. Compare online lenders and other banks that could fit your borrowing needs.
Compare lenders that offer $3,000 loans for varying credit situations.
Compare lenders that offer $2,000 loans for different credit situations.
If you need cash for an emergency or to last you until payday, a $1,500 short-term loan could help — but with potential drawbacks.
If you’re in need of $1,000 for an emergency, start a comparison of these bad credit lenders offering quick, unsecured $1,000 loans.
Compare lenders that offer $5,000 loans for good, fair and bad credit.
I want cash loan please contact me.
Hi Vijay,
Thanks for your message and for contacting finder.
I’m afraid we’re not able to contact you. If you’d like to speak to a loan provider, choose from our list within the page that says “8 providers that accept self-employed applicants” and hit the GO TO SITE button. If you need to review the provider, select the MORE INFO link and it will direct you to a review page by finder.
As a friendly reminder, be sure to check out the Product Disclosure Statement of the loan before applying and make sure your talk with the lender is clear enough and you’ve discussed all options available.
Hope this was helpful. Don’t hesitate to message us back if you have more questions.
Cheers,
Nikki