Those who are self employed usually face specific challenges when trying to secure funding for their personal endeavors.
Due to a lack of a steady paycheck and/or inconsistent income, lenders may feel more resistant to loaning the necessary funds.
For this reason, lenders will typically ask for a greater amount of documentation to determine whether self-employed workers can consistently meet their payments.
However, this doesn’t mean that getting a personal or business loan is impossible if you’re self employed -you just need to know where to find it.
From government assistance to specific banks or other resources, you still have several options to explore beyond traditional lenders.
Keep reading to take a look at some of them below.
Personal Loan Options for the Self-Employed
Because these loans can be used for just about anything – including emergencies, medical bills, home repairs, debt consolidation, and more – it’s inherently difficult to obtain. Below are some personal loan options available…
Some of the best personal loan lenders available are based online and are known to work with those who are self employed. However, in any case, it’s crucial that you apply for a loan that sets you up for the best chance of approval.
Credit cards are usually easier to qualify for than personal loans since it involves a line of credit – rather than a lump sum of cash. You will find additional benefits with major credit cards as well, including travel perks, exclusive offers, and other discounts. Moreover, the application process is fairly straightforward; the bank will verify your annual net income, credit score, and debt-to-income ratio.
Payday loans are designed to help borrowers in emergency situations but are not meant to be long-term financial solutions. These loans generally need to be repaid during your next pay cycle and typically cover smaller amounts with limits varying by state.
Before considering payday loans, you may want to assess other loan options such as friends and family if the need is urgent.
A co-signer can be a valuable resource when you are facing difficulties in trying to qualify for a personal loan. Whether you have recently started to build your credit or are in the current process of rebuilding it, a co-signer can help you acquire a better rate.
You can typically add a co-signer such as a parent to your personal loan or credit card application, and financial institutions will verify their income and credit score as well.
Your co-signer is also agreeing to take on your debt should you be unable to pay back the loan, and there are other consequences outlined in what is called a Notice to Co-signer.
Business Loans for the Self-Employed
If you’re a sole proprietor looking for a business loan, you have quite a few options. While your local SBA office offers loan options tailored to sole proprietors and small businesses, you can still secure funding from online lenders and other sources.
The Small Business Administration (SBA) may be one of the most ideal options for sole proprietors, self-employed workers, and independent contractors to start their business loan search.
While the SBA’s most common loan program is the 7(a), others can benefit self-employed workers in particular, including SBA microloans. These loans range in amounts from $500 to $50,000 and can be used as working capital.
Business Credit Cards and Lines of Credit
Although Business credit cards work like personal credit cards, they are linked to business bank accounts and should only be used for business expenses. Depending on the card, you may receive cash back on purchases like office supplies, internet or cable services, and gas.
A business line of credit, meanwhile, is a loan that allows you to borrow up to a certain limit and then pay interest on that amount.
How To Apply
When deciding to apply for a personal or business loan, the best step is to be prepared.
You’ll need any of the following to apply as a self-employed worker:
- Federal tax returns for the last two years
- A Schedule C or Schedule SE form
- Bank statements
- You will also want to evaluate your credit score beforehand
“What’s Best For Me?”
You may have at some point heard the following phrase:
“Being prepared isn’t half of the battle – it is the battle.”
If you are certain that you must obtain financing but have no guiding parameters or clear direction, you have a higher chance of stumbling into a dangerous situation. Before going any further in the decision process, ensure that it’s appropriate for you and your situation first.
Our financial professionals here at MCDA CCG have in depth knowledge covering a wide range of loan options as well as how to help those who are self employed secure the right one for them.
We can help you at any step of the process: from research to the decision to the application, we are here to walk you through a unique and challenging situation.
Call our office headquarters in Placentia, Orange County, California to speak with one of our advisors today!
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