How to Get a Loan If You're Self-Employed

Whether you're a freelancing professional or you own your own business, keeping your finances in order can be a challenge. To get ahead or make ends meet, you may need to apply for a personal loan. The right loan can fund start-up costs, pay office expenses, and even help you expand your business.

Self-employed loans can also cover unexpected bills and help you get by until your next payday. However, applying for a loan as a self-employed individual without a W-2 can be tricky.

The biggest obstacle is that you'll need to prove to lenders that you can repay them without the benefit of a steady paycheck. Luckily, lenders are adjusting to the new gig economy and making it easier for self-employed borrowers to qualify for personal loans. You simply need to provide the necessary financial documents proving your income and credibility.

Read on to learn how self-employed loans work and which types of loans you may be able to qualify for.

Can you get a loan if you're self-employed?

Being self-employed is commonplace nowadays. From freelance programmers and social media managers to pet sitters and food delivery drivers, self-employed career opportunities are everywhere.

Self-employed individuals enjoy flexible hours and typically earn what they might in full-time employment — if not more. Because many self-employed ventures are fairly lucrative, qualifying for a self-employed loan is usually straightforward and commonplace.

There are several things potential lenders will consider when you apply for a loan as a self-employed borrower, including your:

  • Current income
  • Credit score
  • Payment history
  • Total debt
  • Total assets

If you can prove you have a relatively consistent income and don’t have trouble paying bills, you may qualify for a loan.

Challenges of getting a self-employed loan

When lenders review applications for self-employed borrowers, they understand that fluctuations in your income are to be expected. Because of this, lenders like to look at several years of your income history to see if there's an upward trend. If you've been self-employed for several years and have proven successful, it shouldn’t be difficult to qualify for a loan.

If you're newly self-employed, however, it will be much more challenging to qualify for a personal loan on your own. You may not have enough income history to prove to lenders that you can generate a steady cash flow that will allow you to pay back your debts.

>RELATED: How Much Do You Have To Make To File Taxes?

How do loans for self-employed borrowers work?

Since you won’t have any W-2 forms to show lenders, expect to answer questions about your business and provide financial documents such as tax returns and bank statements. In many cases, if several years of tax returns and bank statements prove you can generate a steady income, you are more likely to get approved for the loan. 

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

If not, you might need some help to qualify. 

Get a co-signer

One of the ways you might get approved for a loan as a newly self-employed borrower is by having a co-signer. Lenders will consider your co-signer's financial information and history in addition to your own. If your co-signer has a steady income, assets, and a good credit history, you're more likely to get approved for your loan.

Offer collateral

Some lenders may ask you to offer collateral for a secured loan. Secured loans are backed by valuable property, such as a vehicle or certificate of deposit. This allows a lender to secure payment of the loan by taking possession of the collateral if you can’t repay the loan.

>RELATED: What Are Collateral Loans?

Loan options for the self-employed

Now that you know how loans work for self-employed borrowers and understand the obstacles you may face, let's examine your loan options.

Cash Advance

A Cash Advance is a short-term loan typically paid back on your next payday. A Cash Advance gives you early access to small amounts of money, usually under $1,000. This could allow you to cover emergency expenses if you live paycheck to paycheck until your business takes off.

Installment Loans

Consider an Installment Loan if you need to borrow more money than you expect to earn by your next paycheck. Installment Loans are ideal for covering business expenses, such as buying a new piece of machinery, purchasing office equipment, or repaying a debt.

Lenders consider your employment history, income, and current debts when deciding whether to approve you for an installment loan. As a result, you may not even need good credit to qualify. You can also repay your loan in fixed monthly payments, making it easier to budget your business expenses.

Title Loans

A title loan can be a good option for self-employed borrowers. Title loans allow you to borrow a specific amount based on your vehicle’s cash value. The lender inspects your vehicle in person and provides an estimate within minutes. Plus, since your car is used as collateral, you don’t need good credit to qualify for a title loan. Depending on your state, however, you may need to provide proof of your average monthly income.

Personal Loans

Personal Loans are another option for self-employed borrowers. Unlike small-business loans, which are designated for business-related expenses, you can use a personal loan for any personal or self-employed business expenses. Keep in mind, however, that personal loans from traditional lenders like banks and credit unions are generally harder to qualify for due to their income and credit requirements.

Line of Credit

A Line of Credit works a lot like a credit card. Once you open a personal Line of Credit, it stays open, allowing you to withdraw money from the available funds. In addition, you only pay interest on the amount you borrow, giving you more flexibility and control over your debt.

Although a good option, it can be difficult to open a credit line if you're newly self-employed. As such, you may need a co-signer to get approved.

How to apply for a loan if you’re self-employed

So, how can you get a loan if you’re self-employed? Follow these steps:

Compare lenders and loan options

First, you’ll want to compare various loan options from multiple lenders. Review the types of loans, rates, and terms when shopping around, and don't be afraid to ask for multiple quotes.

Gather your personal and self-employed documents

Once you’ve decided on a lender, gather the documents they require for the loan application. Typically, you’ll need your:

  • Government-issued ID
  • Proof of income
  • Checking account information

Some states also require your Social Security number and a voided personal check.

Providing your personal documents is one thing, but gathering documents that prove your income can be challenging for self-employed borrowers. You should be prepared to show at least one year's worth of bank statements, tax returns, tax transcripts, profit and loss statements, or Social Security benefits statements, if applicable.

Fill out and submit a self-employed loan application

Once you have the necessary documents, it’s time to apply. You can apply either online or with the lender in person. Advance America, for instance, offers fast and convenient online self-employment loan options. Depending on where you live, we may even have a location near you where you can discuss your loan options face-to-face.

Wait for your loan approval decision

Sit tight and be patient! The lender will likely reach a decision about your self-employed loan in less than 24 hours if you’ve provided the necessary personal documents and financial information.

Apply for an Advance America loan if you're self-employed

Regardless of your credit score or how long you've been working on your own, loans for self-employed individuals are available if you know where to look.

Advance America offers a variety of loan options well suited to the needs of self-employed borrowers. Apply online or visit your nearest Advance America branch to see if you qualify.

About the Author

Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.

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