If you are self-employed and need a loan, don’t assume that this is automatically ruled out for you. If you need to borrow money online and need to find any loan, being self-employed can make things seem that little bit harder. Self-employed people can however, still be eligible for a range of borrowing options. For example, you may still be able to borrow money in the form of personal loans, payday loans and even some cash advance options.
A personal loan can provide you with a set amount of money that you can repay over a fixed time frame, agreed with the lender. These loans are generally short-term and give quick funding, with many lenders providing an instant decision and same day funding upon approval. In most cases, personal loans are unsecured, such as debt consolidation loans and payday loans, but there are also secured personal loan options such as title loans.
You may need to borrow money to get a loan because of emergency expenses, such as a car breaking down, medical bills, household expenses or a major home appliance repair. Debt consolidation may be another reason why you are looking for a loan. If you have high-interest credit card debt you may be able to save money by paying it off with a lower-interest debt consolidation loan.
But is it difficult to get such a loan if you are self-employed and what are the differences between being self-employed and in full time, regular employment when it comes to needing to find a loan in the USA?
Is it Harder to get a Loan If You Are Self-Employed?
It may be harder to get a personal loan if you are self-employed because lenders generally want proof of you being in stable employment as this indicates you have a steady source of income, which will of course be used to pay back the loan and the interest when you do get accepted for any loan of any size. As they are lending you a set amount of cash, a lender will want to be sure that you will be able to make the repayment date or dates, depending on the loan you have borrowed.
The key is that you need to be able to show lenders that you have a steady source of income; whether in the form of regular employment or via self-employment. Every loan, both secured and unsecured, will typically require you to have a steady source of income. Even a secured loan such as a title loan (which asks the borrower to provide their car as collateral) which may not even check your credit history will still require a pay stub to be applied for.
This demonstrates how a steady source of income is one of the most important factors to a lender when deciding whether or not to loan money to a borrower.
Of course, being self-employed does not mean that you do not have a steady source of income, but if you are new to self-employment it may be more difficult to prove that your income is consistent and you may therefore struggle when it comes to lenders viewing you as a favorable lending prospect, whether you need to borrow $500, $2,000 or more.
What Loans Are Available to the Self-Employed?
Anyone who is self-employed can still apply for personal loans and short term loan options. However, always make sure you check the terms and eligibility criteria of your chosen lender, as some may explicitly state that borrowers should be in a position of employment, rather than self-employed.
When it comes to needing to borrow money when self-employed, the important thing is being able to demonstrate to lenders that you have a steady and somewhat stable source of income each month.
The longer the period you can show a stable and steady source of income, the more likely you are to get a loan when self-employed in the US. For example, if you are self-employed and need a $1500 loan, if you can show lenders that you earn significantly more than this most months, you will be more likely to be accepted for the loan you request.
Having more stable and steadier sources of income whilst self-employed shows lenders that you are more likely to have the money required to repay the loan when the time comes. This in turn, reduces the risk for the lender, making you a more appealing lending prospect.
Debt Consolidation Loans
A debt consolidation loan is a personal loan that you can use to pay off any high-interest debt that you may have, including credit card debt, medical bills, unexpectedly high utility bills and more. By streamlining multiple debts into one unified debt payment, you can take numerous high-interest debts and put them into one, lower-interest loan, which is more manageable to repay over a longer period of time.
As a self-employed person, having a system whereby you have all your debt in the same place may be very helpful, but you should remember to consider the interest charges which you will have to pay in a set repayment plan.
You may have incurred debts when starting your business or perhaps your business has not made you enough money one month to cover all of your living costs and expenses. No matter whey you need a debt consolidation loan when self-employed, it can be wise to utilize a larger loan to pay off multiple smaller loans and debts to get you back on your feet and out of debt.
Self-Employed Payday Loans
A payday loan is a common type of short-term borrowing where a lender will extend high interest credit based on your income. Repayment of the loan is generally due on the day of your next pay check.
Getting a payday loan when self-employed will require the same criteria to be met as for other loans when you are self-employed. Therefore, it is important to check you meet some of the more common criteria for getting a payday loan in the US:
- You must be over 18 years of age
- You must live in a state where payday lending is legal (such as Florida, Louisiana, Tennessee and others)
- You must have a valid and active checking account
- You must be in employment or have a regular income of at least $800 per month
A key benefit of payday loans for anyone; self-employed and otherwise if that they can be offered quickly and many lenders will give you an instant decision on your requested loan. They do however have high-interest rates and are only legal in certain states. Therefore, you must check your state regulations before attempting to obtain a payday loan.
This is a type of secured loan, also known as a ‘car title loan,’ in which the borrower can use their vehicle title as collateral. Once the loan has been repaid, the car title will be returned.
Title loans may not require a credit check, but they will check your income and the condition of your vehicle. These loans are useful as they can help people borrow $400 ,more or less, depending on the value of the vehicle and the needs and requirements of the borrower.
Title loans can be popular with self-employed people as if they are unable to show sufficiently stable income to lenders, it may be that unsecured loan options like cash advances, payday loans and even bad credit loans are not suitable. Therefore, securing a loan against a high value asset such as a car or a property may be the only way to get a loan when self-employed.
What to Consider Before Getting a Self-Employed Loan
If you are getting a loan because you are short of cash now, you must consider if you will be in a position to pay it back at a future date. If you are self-employed, this means being certain that you have a steady source of income that will carry you over to the repayment of the loan. It is important when self-employed to always ensure you plan ahead and have some money set aside for a rainy day.
As the interest rates are also typically quite high when it comes to personal loans, payday loans and similar types of short term loans, you must seriously consider your ability to repay a personal loan on your income as a self-employed person.
If you cannot repay your loan, you are at risk of damaging your banking and credit history. This will hinder your ability to get out any future loans. If you are self-employed, you may need to obtain credit or other business loans in the future and therefore, maintaining a good or excellent credit rating can help you acquire that credit down the line when you do need it.
Is Getting A Loan When Self-Employed a Good Idea?
If you need cash quickly, a personal loan may be a necessity, particularly when you are facing a financial emergency or multiple unaffordable debts and expenses. It can be a good idea to get you out of debt and to help you consolidate various loans into a more manageable repayment option, or if you need cash for an unforeseen personal event such as a loan for a medical bill, divorce or funeral.
If you need to cover emergency expenses, such as home renovation or even emergency vehicle repairs, particularly if you need that car or vehicle for work, getting a personal loan may be a suitable option.
These personal loans may be just as necessary to someone employed by a company as someone who is self-employed. You may simply be more vulnerable in self-employment, but as long as you have a steady source of income, it may not necessarily be more dangerous.
Alternatives to getting a loan if you are self-employed include:
- Asking friends and family to lend you the money you need
- Using any savings that you have built up
- Utilizing any available credit on a credit card
- Speaking to creditors to work out repayment plans
- Using your savings
What Counts as Self-Employed Income?
It is not uncommon to be employed in a job as well as being self-employed on the side at the same time. However, if you are fully self-employed or a significant portion of your work and income is from self-employment, you should understand what qualifies as self-employed income in the USA.
Generally speaking, and according to the IRS, self-employed income is income which comes from the performance and delivery of personal services and which can’t be classified as wages. This usually means that there is no employer-employee relationship existing between the person or company paying and the person or company receiving the money for the services.
How Do You Get Approved For a Loan If You Are Self-Employed?
There are no guarantees when it comes to getting a loan if you are self-employed. Lenders will typically assess you and your financial circumstances before making their lending decision. If you are self-employed however, you cannot guarantee you will be accepted for any loan at any time, no matter why you need the loan in the first place. There are however a few things you can do to help improve your chances of getting approved for any type of personal or short term loan if you are self employed, including:
- Having all of your personal tax returns available (at least 2 year’s worth)
- Showing your latest balance sheet
- Providing a valid business license
- Ensuring you are on the voting register
- Checking your credit score before applying for a loan
Whatever you need a loan for, by giving lenders what they need for your application, you can help increase and improve your chances of being accepted for a loan.