When applying for a loan, you may have some unique challenges if you’re self-employed. However, you can still secure a loan that fits your needs. Ultimately, lenders want to see that you have a sufficient, stable income from your business. You can prove this by providing tax statements or other documentation.

Flexible Repayment Options

The many benefits of loans for self-employed are clear, but applying for and qualifying for them can be confusing. A lender will want to know that you have a steady income and can repay your loan on time.

If you are a new self-employed borrower, showing them a few years of tax returns to prove your income level is a good idea. This is especially important if your business fluctuates in the short term, like when it is experiencing a large spike or a drop in cash flow. You can also show lenders any contracts or letters with clients that describe your work for them and how long the contract will last. This can help you demonstrate that your self-employment is stable and will keep you in business.

Low-Interest Rates

Low-interest rates are one of the main reasons you’ll find so many lenders offering loans for self employed borrowers. These are typically unsecured, so you won’t have to use collateral like a car or house to get the necessary funds. A self-employed borrower can claim more of their income as business expenses, which helps them pay less in taxes. This can be a good thing in the short term, but it can also make it challenging to qualify for a mortgage or personal loan. Lenders may also consider a borrower’s track record when deciding whether to extend financing. 

No Collateral Required

Before approving a loan, lenders typically evaluate factors such as your credit score and income to determine if you are a reliable borrower. If you are self-employed, this may be more challenging because you aren’t likely to have documentation like a W2 from your employer. However, you may have other options for proving your ability to make on-time payments. In addition to the traditional documentation, such as pay stubs and W2s, lenders often use factor rates to assess your creditworthiness. Factor rates can range from a few points to several digits, and they are often used in conjunction with other factors such as credit score, length of time you have been self-employed, and business industry. If you need better credit, this can increase your chances of getting the loan without relying on a co-signer.

No Hassle

When you apply for regular loans such as a car or home mortgage, borrowers are asked to provide numerous documents and information. These can include credit scores, pay stubs, previous tax returns, etc.

Self-employed borrowers must be especially careful when applying for a loan as they must prove that their income is steady and consistent yearly. It can be more difficult for someone new to the business, but it is possible to show a lender several years of tax and bank statements showing that you have a stable flow of money from your company.