Personal Loans for the Self-Employed

If you’re a freelancer or business owner, you know how challenging it can be to manage your finances. Whether you need funds to cover start-up costs, office expenses, or expansion, the right personal loan could provide crucial support. 

How do loans for self-employed borrowers work? 

Self-employed loans are personal loans meant to help with unexpected or business-related expenses. While applying for a loan without a W-2 can be tricky, many lenders are adapting to the gig economy by accepting other financial documents that prove your income and ability to repay. Instead of relying on a W-2 to verify income, your lender might ask for your recent tax returns, bank statements, or profit and loss statements. 

Lenders may also consider your credit score, business history, and overall financial health when evaluating your application. While the process can be more complex, many lenders now offer specialized loans for self-employed individuals, making it easier to get the funding you need. 

Challenges of getting a self-employed loan 

Self-employed borrowers face unique challenges when they apply for loans. For example, they may: 

• Need to provide multiple documents as proof of income. 
• Have an inconsistent monthly income. 
• Have a lower net income than W2 workers earning the same gross amount because of self-employment taxes. 
• Be required to show proof of cash reserves. 

To determine your financial stability, lenders often look at several years of income history to identify any upward trends. If you've been successfully self-employed for a few years, qualifying for a loan should be relatively straightforward. But if you're newly self-employed with a short earnings history, it may be difficult to prove you’ll have the income to repay the loan. 

➢RELATED: How Much Do You Have to Make to File Taxes?

Personal loan options for the self-employed 

Self-employed borrowers who don’t qualify for traditional business loans might consider personal loans. Unlike small-business loans, which are strictly for business-related expenses, personal loans offer the flexibility to cover both personal and business needs. 

Cash Advance 

A Cash Advance is a short-term loan typically paid back on your next payday. Also known as a Payday Loan, a Cash Advance gives you quick access to small amounts of money. This kind of loan can cover emergency expenses if you live paycheck to paycheck until your business takes off. 

Installment Loan 

If you need to borrow more than what you expect to earn by your next paycheck, consider an Installment Loan that you repay over time in fixed monthly payments. These loans can cover business expenses, such as purchasing new machinery and office equipment, or paying off debt. Lenders will consider factors like your employment history, income, and existing debts — and you may not need good credit to be approved. 

Line of Credit 

A Line of Credit works much like a credit card. Once opened, it remains active, allowing you to borrow as much money as you need up to your approved borrowing limit. The best part? You only pay interest on the amount you borrow rather than the entire credit line. 

While a Line of Credit is a useful option, it can be difficult to secure without a co-signer if you're newly self-employed. 

Title loan 

For self-employed borrowers, a title loan is an option allowing you to borrow money based on your vehicle's value. Because your car acts as collateral, good credit isn’t required for approval. Depending on your state, you may need to provide proof of your average monthly income. 

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Tips to qualify for a loan when you're self-employed 

Provide proof of income 

Proving how much money you earn can be more challenging for self-employed borrowers. Be prepared to show at least one year's worth of financial documents, such as bank statements, tax returns, 1099s, profit and loss statements, or Social Security benefits statements, if applicable. It may be helpful to create a spreadsheet report of your financial information and include the other documents to support the numbers in the spreadsheet. 

Get small loans at first 

Apply for small loans you’re more likely to be approved for and pay them back as quickly as possible. Borrowing and repaying several small loans when you’re self-employed shows lenders you’re a responsible borrower and may help you get larger loans in the future. 

Offer collateral 

You can also increase your chances of approval by offering collateral, such as a vehicle or other valuable item, for a secured loan. There’s less risk for lenders with secured loans because if you’re unable to repay the loan, the lender can claim and sell the collateral to recover the amount of the loan. 

➢RELATED: What Are Collateral Loans?

Improve your credit score 

A good credit score can significantly improve your chances of loan approval. Pay bills on time, reduce outstanding debts, and monitor your credit report regularly to raise your credit score. 

Get a co-signer 

If you're newly self-employed, having a co-signer can improve your chances for loan approval. Lenders will review financial information for you and the co-signer. If your co-signer has a stable income, assets, and a strong credit history, it boosts your likelihood of loan approval. 

However, co-signing is risky for you and the co-signer because both parties are responsible for the loan. Your late payments or loan default will negatively affect the co-signer’s credit, and credit problems that occur for the co-signer can impact you. Only agree to a co-signed loan with someone you trust and if you’re confident you can repay the loan in full and on time. 

Other loans for the self-employed 

There are other self-employed loans you may not have considered, such as: 

1. Small Business Association (SBA) loans 

SBA loans offer self-employed borrowers a valuable way to fund business needs, such as purchasing equipment, expanding operations, or managing cash flow. Unlike personal loans, they typically come with higher borrowing limits and more favorable terms for business owners. When applying, lenders assess your business's financial health by reviewing income statements, credit history, and sometimes a business plan. 

2. Business credit cards 

Consider applying for a business credit card — but be aware that these can only be used for business-related expenses. 

3. Credit card cash advance 

A credit card cash advance allows you to borrow money against your existing credit card without needing an additional credit check since you’re already approved for the card. You can access funds by withdrawing money from an ATM or using a convenience check provided by the credit card company. While this option provides quick access to cash, it can be costly due to extra fees and higher interest rates for cash advances. 

4. Home equity loan (HELOAN) or home equity line of credit (HELOC) 

If you're a self-employed homeowner, a HELOAN or HELOC allows you to borrow against the equity in your home, providing a lump sum of money to use for personal or business expenses. To qualify, lenders evaluate your home's value, your remaining mortgage balance, and your credit history. Although the approval process may be stricter, a HELOAN or HELOC offers a way to use your property's value to borrow funds for business expansion or unexpected expenses. 

5. Merchant cash advances 

A merchant cash advance allows business owners to receive a lump sum of cash from a lender. In exchange for the loan, you agree to pay back the lender with a percentage of your future credit card or debit card sales. 

6. Invoice financing 

Another loan option for business owners is invoice financing. After submitting your invoices to a lender, they give you the invoice amount minus a percentage they keep as payment. When your customers pay your invoices, you repay the lender. 

Self-employed loan FAQs 

Can I get a self-employed loan with bad credit? 

Yes, if you’re self-employed, you can get a loan with bad credit if you pick the right lender and prepare your income documents accordingly. Lenders typically look at other factors besides your credit score, such as your income, financial history, and the stability of your business. Applying for a secured loan or having a co-signer with good credit can also improve your chances of approval. 

How much can I borrow with a self-employed loan? 

It depends on the lender, type of self-employed loan, your income, credit score, and length of self-employment to determine how much you can borrow. If you’re newly self-employed, your loan might be just a few hundred dollars, whereas if you’ve been successfully self-employed for a number of years, you could potentially borrow up to several times your annual income. 

Can I get a loan without income verification? 

Yes, you may still qualify for certain personal loans if you can provide proof of alternative income sources, such as unemployment benefits, Social Security, pension or retirement income, alimony, child support, savings, or even a spouse’s income. 

Apply for an Advance America loan 

if you're self-employed Regardless of your credit score or how long you've been working for yourself, loans for self-employed individuals are available if you know where to look. Advance America understands the needs of self-employed borrowers. We offer Payday Loans, Installment Loans, and Lines of Credit to help you cover business and personal expenses. 

Apply online or visit a nearby Advance America to get started.