Are you looking for a loan when self-employed?
Finding the process more difficult than you expected?
While being self-employed comes with many benefits, the ability to get a personal loan is not one of them. Getting a personal loan can seem like an impossible task without a solid employment record to back you up. Luckily, though, as long as you follow the right tips and tricks it can be done.
Below we’ll give you our top tips for getting a personal loan when you’re self-employed.
1. Get Your Paperwork Together
One of the top things that will help you get a personal loan is to ensure that you have plenty of paperwork to show to your potential lender. The right paperwork can help you demonstrate your worthiness as a borrower.
Before applying for a loan, you should be taking thorough financial records for your business and be tracking your earnings clearly month after month. Ideally, you’ll have been in business for at least 2 years already and will have all of the financial information, bank statements, and records to show that you have a regular income.
While getting a loan is possible without extensive paperwork, it will be an uphill battle if you don’t have the right documents together.
2. Improve Other Financial Factors
When self-employed, it can be difficult to prove your income. Luckily, there are other factors that lenders may also look to for determining your reliability.
One of the top factors is your credit score. Credit scores can range between 300-850 and your score will affect how you look to lenders quite a bit. You need to know your score and learn to understand what it means. If you have a poor credit score, you may want to spend some time building it up before applying for a loan.
Other things that can help you to look more stable and reliable is if you have had a regular address for a long period of time or if you own property. You may want to get documentation to prove some of these other factors as well if they apply to you.
3. Minimize Debts
If you’re trying to get a personal loan when self-employed, you need to make sure that you do anything you can to eliminate any existing debts beforehand. If you have maxed out credit cards or other loans that you’re still paying off out it will make you seem unreliable to lenders and they will be less likely lenders will trust you with their money.
If you can, take some time to knock out a few of your current debts before applying for a new personal loan. If you do, you’ll have a greater chance of getting approved.
4. Sweeten the Deal
There are a few special things you can do that can make it more easy for lenders to trust you and approve you for a loan.
Having a co-signer or guarantor is one of the best ways you can improve your odds of getting approved. However, just make sure that you pay your loan off consistently or someone else may be liable for your debt.
Additionally, it can also be helpful to get a secured loan. With these loans, you’ll need some kind of collateral to put up against your debt such as a vehicle or property. A secured loan can be easier to get approved for since the lender will have a way to cover their losses if you neglect to keep making payments.
5. Compare Your Lenders
Another way you can improve your chance of getting approved for self-employed loans is to make sure that you compare your options thoroughly. Choosing the right lender for your situation can make all the difference when looking for a personal loan.
Traditional bank loans are only one of many options out there for getting a personal loan. Traditional banks will often be pickier than other lenders, so it’s a great idea to consider alternative options.
Credit unions are often a better choice for getting a personal loan and will often be more willing to lend to someone who is self-employed. There are also many online lenders that can be a good option. P2P lending sites can also make a good choice as well.
6. Time It Right
It’s also important to make sure that you’re ready before you start applying for loans. While you may be in need of a loan quickly, if you’re able to wait a bit it may be a good idea.
For example, if your credit score is currently low, then you may want to spend some time to build your score up before applying for a loan. You may also want to wait to apply for a loan if some other parts of your financial situation need some work.
Additionally, it’s also a good idea to wait if you haven’t been in business for yourself very long. Often, lenders like to see at least 2 years of income from self-employed individuals. Waiting until you have at least 2 years of tax returns to show lenders can help improve your chances of getting approved.
7. Be Prepared
While you should wait for the right moment to apply for a loan, once you start seeking a loan you should move fast. This means that you should have all your paperwork, collateral, or anything else that will be required by the lender together and ready.
Ideally, you should be able to move through the application process swiftly with little downtime. Having this stuff together early on can help you be more attractive to lenders and will make you seem more reliable. By having all of your paperwork and other requirements ready early on you’ll have a greater chance of getting a loan in the end.
Improving Your Chances of Finding a Loan When Self-Employed
If you’re self-employed and in search of a personal loan you may be beginning to lose hope. However, be sure that you keep the above tips in mind. By using the tips above, you’ll be more likely to get what you need despite not having a traditional employment situation.
Be sure to consider your loan options thoroughly and get all of your information together before applying. If you do, you’ll be more likely to find a great lender and get the perfect personal loan for your needs.
Stay tuned to our blog for more tips.