Business Loans

Loans for the Self-Employed: What You Need to Know

There are several benefits and advantages of being self-employed. Not only can you avoid those unfortunate “run-ins” with unpleasant bosses, but self-employed people also generally have more freedom over determining their schedule and time. Achieving a healthier work/life balance is often one of the greatest benefits of creating your own business. However, self-employment also comes with certain risks and challenges as well.

Whether you need a small loan for your struggling business, or a personal loan for yourself, self-employed individuals often face certain discrimination from banks and other traditional lending institutions. Below, we outline some strategies to help self-employed individuals find loans at fair terms and interest rates.

The Challenge of Self-Employment in Applying for Loans

In Australia, almost 17 percent of workers are self-employed, according to statistics released by the World Bank. However, traditional financial institutions continue to put up several barriers to self-employed individuals seeking different types of loans. For example, one of the most common pieces of documentation that banks ask for is proof of income from an employer. This piece of information is used to determine your financial stability and how much you can afford to pay back on a monthly basis.

Self-employed individuals, however, often have less stable incomes on a monthly or weekly basis. Traditional financing institutions often consider this to be a disadvantage or risk factor, and might deny the loan based on this analysis. Furthermore, other eligibility requirements, such as proof of assets other than income might also be tricky for self-employed people.

How to Get a Loan If You Are Self-Employed

Getting a loan as a self-employed person often requires thinking outside the box. If the stringent requirements of the banks are making it close to impossible to get any type of loan, consider the following suggestions:

  • Look for online lenders. Today, there are hundreds of online financing institutions, and several of them will have less rigorous standards for approving loans for self-employed individuals. You can start your search here.
  • Share Your Tax Returns from Year´s Past: Self-employed people often have trouble convincing the banks that they are financially stable due to a lack of verifiable, steady income. Sharing the tax returns from the past four to five years can show the banks or other lending institutions your personal and business-related financial solvency.
  • Share Your Bank Statements: Along the same lines, keeping track of your bank statements can act as an alternative form of income verification that you can use to help convince lenders of your financial situation.
  • Use Collateral: Secured loans are certainly riskier for an individual. However, when you need money fast and you´re having a hard time getting an unsecured loan, using some sort of personal asset as collateral (house, car, property, etc.) will make it easier to apply for a loan.

Between searching for online lenders, sharing your tax returns and personal bank statements, and opting to use collateral for a secured loans, almost any self-employed individual will be able to find some financial institution willing to give them the financing they need.

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