While business owners and real estate owners can reliably get loans for the development of new properties or other purposes, freelancers might feel like their options are more limited. Whether you’re a gig worker, independent contractor, or any other type of freelancer, a business loan can feel like it’s out of reach. That doesn’t have to be the case, though.
Self-employed workers can and do apply for and receive business loans. Let’s take a look at how to apply, what kind of loan you could get, and more.
Can I Get a Business Loan if I’m Self-Employed?
While standard employees are tied down to a set schedule and working style, they do enjoy the benefits of a steady paycheck. Regular pay stubs make it easier for you to qualify and apply for a business loan or any other type of arrangement because lenders see these as lower risk investments for them.
Regardless of how much you make as a freelancer (and many freelancers frequently make more than salaried employees), the lack of a steady paycheck presents a hurdle for many lenders. Even so, you have solutions to choose from, such as a small business loan from a more modern fintech company.
One thing that many freelancers don’t consider is that by reporting freelancer income to the IRS, they can actually consider themselves to be a small business. Even if you don’t have a formalized business plan or structure, you still qualify.
How Do I Apply for a Self-Employed Loan?
You have a few different financing options as a freelancer. While it used to be the case that you’d need to apply for a loan in person, over the phone, or through the mail, many lenders have since turned to an online application process.
You can choose a local solution and apply with a credit union or a bank near you, although you should know that applying with more traditional lenders like these can be a cumbersome and drawn-out process. Along with that, many banks shy from individuals who don’t have a regular, steady paycheck.
You could also get in touch with a loan broker that works specifically with businesses. These lenders tend to use many different sources when lending, so they’re more open to lending to freelancers and those deemed “risky investments” by other sources.
With that said, many loan brokers make their money from commission, so you should make sure that they don’t point you toward a product that will cost you in the long term.
You could also reach out to lenders directly and look for particular products and solutions geared toward gig workers. Despite the scarcity of products, finding one could be the difference between ample financing and none at all.
Lastly, you can turn to an online marketplace that aggregates a number of lenders, products, and solutions. From there, you can compare your options and make an informed decision based on your unique needs and abilities for repayment.
How Can I Qualify?
In order to qualify for a business loan as a gig worker, you need to be able to prove to a potential lender that you can and will repay their loan.
To guarantee the former, a lender will look at things like cash flow and income. To ensure the latter, they’ll look at your lines of credit and overall credit history. They may check both your credit as well as your business’s credit.
Most lenders tend to look for a credit score somewhere in the 600s. Some other financing products and options do have greater flexibility, so you still have options even if your credit score is poor. Lenders also look into factors like how long you’ve been in business. If you’ve been in operation for at least two years, you’ll have a better chance of approval than a newer business owner.
You will also need to demonstrate that both you and your business receive some sort of income. Since you won’t have pay stubs to prove this, lenders will likely ask for a tax return or bank statement for you to prove the income. Some lenders might require you to link an account so that they can independently verify amounts.
How Do I Prove My Income?
While proving your revenue and other forms of income can present an obstacle to qualifying for a business loan, it doesn’t have to. Here are just some of the records that you can supply to qualify and prove your income:
- Your business’s balance sheet
- Any personal income tax returns that you might have
- Any of your business tax returns, especially if they go back two years or more
- Your original business license
- Any bank statements you have for your business account
- Your YTD (year-to-date) profit and loss statements
What Kind of Loans Could I Get?
You might qualify for any number of loan options. Some of these include:
Lines of credit. With this option, you can borrow up to a set amount based on the needs of your business. A line of credit works especially well for businesses that operate seasonally and that have revenue that can fluctuate.
Term loans. A term loan allows you to borrow a specific amount for a set goal or project. You typically need to repay these loans on a monthly basis.
Invoice financing and factoring. This solution works incredibly well for B2B professionals who rely on invoicing to get paid. This solution allows you to get paid quicker, and a lender will consider your customer’s credit here instead of yours.
Check Out Nearside’s Business Debit Card for Freelancers
You should also consider using Nearside’s business debit card for freelancers for all the perks, especially if you go with their small business loan option as well. Just as all freelancers are unique, so too are their financial needs. Either way, there’s never been a better time for gig workers to chart their own financial future.
