How to Get a Loan When You Are Self-Employed
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Getting a personal loan when you're self-employed can be a slippery slope. For one, no employer is handing you W-2s that provide proof of consistent income and help lenders sleep better knowing you can repay the money. As a result, lenders may be ambivalent about giving you money because your credit score and income are just some of the factors at play here. You can generally expect to jump through a few extra hoops than someone with a W-2.
But if you're self-employed, being short on cash can at times be an unavoidable occurrence. If you're in a pinch, a personal loan can help you come out of it unscathed. Yet, at the same time, debt can make it more challenging to manage cash flow. But before you sign any documents, you should consider all options, including whether a personal loan is even the right choice or not.
In this article
What is a personal loan
A personal loan is a type of loan that you can use for any personal expense like debt consolidation or a home improvement project. These loans have a fixed term, and you must make monthly payments on time to ensure you remain in good standing with the lender and ensure your credit score doesn't take a hit.
A personal loan is an unsecured loan, meaning you do not have to put up any collateral. As a result, your credit score and income history play a major part in whether you get the loan or not. Loan amounts vary and could range from $1,000 to as much as $50,000 or even more. You typically have to repay the loan in up to seven years.w
Use Quicken Loans to Get a Personal Loan
- If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
- TrustPilot Rating 4.6 out of 5
- Connect with lenders for $0
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Before you apply
Lenders don't distinguish between a more formally structured business and self-employed people. This means you'll be held to the same rigorous standard. Lenders see self-employed people as a risky bet compared to a corporation, especially if you just moved to become self-employed.
Gather proof of income
A lender wouldn't lend you cash until you can provide proof that you're making enough money to make monthly payments. For this purpose, it's a good idea to have a few years of tax returns or tax return transcripts, an official IRS document that lists your gross income, and other financial information. In addition, a lender may also ask for bank statements to ensure you're depositing enough money to keep up with any loan payments. You'll also want to check your credit report.
Put up collateral
Have this as a plan B! There's a likelihood you may be unable to get an unsecured loan. If that does happen, you can consider a secured loan backed by a piece of property like a home or a car. Putting up collateral gives you a better shot at getting the money. However, if you default on the loan, the lender may take control of the collateral to recoup its costs.
Get a cosigner
Getting a loan can become a tough undertaking if you're newly self-employed. This may mean you either do not have the requisite tax returns going back a few years or that you can't provide proof of your cash flow. All this can go against you when you apply for a loan. To circumvent this, you could consider getting a co-signer who would agree to pay back the loan if you have any trouble making payments.
Use Quicken Loans to Get a Personal Loan
- If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
- TrustPilot Rating 4.6 out of 5
- Connect with lenders for $0
- 100% online experience.
Lenders to consider if you're self-employed
Avant
Avant has more than a million customers, and it has helped people borrow over $6.5 billion. It offers personal loans ranging from $2,000 to $35,000 and APRs between 9.95% to 35.99%. You can repay the loan as early as 24 months to up to 60 months. You can receive the cash as soon as the next business day after approval, and you can use the autopay feature to ensure you never miss a monthly payment. Avant requires that they submit two years' worth of complete, official tax documentation for self-employed individuals.
Read a full review on Avant here.
Axos Bank
Axos Bank is an FDIC-insured online financial institution with over $15 billion in assets. Its loan product offers amounts from $5,000 to $50,000 that can be repaid in three to six years. As for APR, you can expect to pay between 7.79% to 14.99%, and Axos can fund the money in two days. The best part? There are no pre-payment penalties, which means if you get a bonus at work, you can put that toward repaying the loan early without paying more. Axos requires the submission of tax returns from the two most recent years for self-employed individuals.
Read a full review on Axos Bank here.
Use Quicken Loans to Get a Personal Loan
- If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
- TrustPilot Rating 4.6 out of 5
- Connect with lenders for $0
- 100% online experience.
Best Egg
You can get loans of $2,000 to $50,000 through Best Egg, which is owned by Marlette Holdings and has thus far delivered over $19 billion in personal loans. As for funding time can take between one to three business days for the money to appear in your bank account. You can repay the loan in three to five years. Loans are made by Cross River Bank, which is an FDIC-insured lender. Loans are currently unavailable in Iowa, West Virginia, Vermont, the District of Columbia, and U.S. territories.
Happy Money
Happy Money is a financial technology company that works with lenders who fund the loans. It has helped fund over $3.7 billion in loans. The company funds personal loans between $5,000 and $40,000 at APRs of 5.99% to 24.99%. Loan lengths are in the two to five-year range. When your loan is issued, the company charges an origination fee of up to 5%. When applying, you must submit the first two pages of Form 1040 and the first two pages of Schedule C or K1.
Upgrade
Launched in 2017, Upgrade has made over $15 million in loans available to people. Its loan product comes with an APR of between 6.55% and 35.97% and loan amounts of $1,000 to $50,000. Repayment must be made in two to six years, and you don't have to worry about prepayment fees. Personal loans have a 2.9% to 8% origination fee. If you're self-employed, you'll need to submit tax returns along with your loan application for the most recent two-year period.
Use Quicken Loans to Get a Personal Loan
- If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
- TrustPilot Rating 4.6 out of 5
- Connect with lenders for $0
- 100% online experience.
Alternatives to a personal loan if you're self-employed
Credit cards
A credit card is your best bet if you've been unable to secure a personal loan. A credit card can be a great tool to build credit if you make your payments on time and in full. Good credit leads to better rates by lenders, and it may even help you qualify for a personal loan next time you need one. On top of that, many credit cards offer points and cashback.
Cash advances
A cash advance is a short-term loan issued by a credit card issuer. To get a cash advance, you can go to an ATM or visit your bank in person. While this may be an easy way to get money, it can also be extremely costly. Cash advances tend to have higher APR than other purchases billed to your credit card. There's also no grace period on cash advances, meaning interest begins to accumulate on the day you withdraw a cash advance.
Home equity loan
A home equity loan lets you borrow money against the equity in your property. It is also a second mortgage because your home secures the loan. The good thing about a home equity loan is that interest rates and monthly payments are fixed, which means you know exactly how much you have to pay. In most cases, loan terms range between five to 20 years, but a few lenders let you repay the money in up to 30 years.
Home equity line of credit
Like a home equity loan, a home equity line of credit lets you borrow money against the equity in your home. But while you get the full amount in the former, the latter gives you access to a line of credit that can be used on an as-needed basis. This is a good option if you know you'll need money down the line, but you don't have clarity on exactly when you'll need the money. You pay interest only on the money used, not the full line of credit. When applying for loans against your home, the lender generally requires the submission of your tax returns to verify your self-employment income.
SBA loan
Experts advise against taking out a personal loan if you're going to invest that into your business. The Small Business Administration, a U.S. federal agency, offers loans for small businesses of $5 million or more with repayment over 30 years. But there's also an SBA Microloan program, which funds up to $50,000 in loans for business expenses, and you can repay the money in up to six years.
Use Quicken Loans to Get a Personal Loan
- If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
- TrustPilot Rating 4.6 out of 5
- Connect with lenders for $0
- 100% online experience.
The bottom line
Whether you're a large corporation or an independent contractor, applying for a personal loan doesn't look different from the lenders' lens. You'll be held to the same rigorous standards as a formal, structured business. However, self-employed borrowers must provide additional documentation and proof of income (remember, do you get pay stubs).
From the lenders' perspective, you're a risky investment, so they'll want to be extra sure before lending you the money. Prequalifying with different lenders can go a long way in arriving at the best option. Each lender has its eligibility requirements. But other loan options must be considered if you get rejected for any reason.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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