Are you a freelancer or self-employed and in need of credit? Applying for a loan as a self-employed is possible in several ways. In this article, we explain the various options. From what to look out for when applying for a self-employed loan to a comparison of different credit loans. All suitable for freelancers, Self-employed and entrepreneurs with sole proprietorships.
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Apply a loan as self-employed: what to consider?
Having a checklist in hand can boost the process regardless of the type of loan. Before moving on to loan options as a freelancer or self-employed, you need to gather some proofs or pre-requisites. It can be easy to apply a loan as self-employed person, but consider the following before you do so:
1. Income Proof
Numbers are important. To apply for a loan as a freelancer, providing proof about earnings can fast track the loan and make it easy. It’s quite common to have an unsteady flow of income as a self-employed but nonetheless, lenders will look at proof rather than want to listen about it. Document your monthly net income and take out the average to present the numbers as accurately as possible.
2. Credit Score and History
What is a credit score? It is a number that represents your credit history. Basically, lenders use it to determine whether or not to approve the loan and what type of terms to set.
Even for freelancers or as self-employed, lenders will use the National Credit Registration System (BKR) for scrutiny. This is the process through which credit history information is retrieved from the bureau – regarding previous loans, payments, and credit cards.
It’s likely for borrowers with high credit scores to get loan approval at low interest rates. However, a low credit score may even lead to denial of the loan completely or higher interest rates. So before applying for a loan as a self-employed individual, clear outstanding debits, limit the number of credit applications, and make timely payments (if any). Improving credit score will increase the chances of approval for self-employed loan.
3. Interest Rate
Researching the lender is as important as considering the borrower history. Interest rates are never the same between two lenders. So before finalizing the choice, prepare a comparison chart to make sure you’re getting the best deal.
4. Repayment terms
Repayment terms will include the following:
- Length of the loan
- Monthly payments
Both of these will depend on credit history and the lender themselves. Before you sign the deal, think about whether or not the payments are realistic.
Collateral means putting something in the contract in case of failure to repayments. This could be any type of property, even a car. Make sure to seek clarity regarding collateral and the consequences that could come along with it before signing the contract.
6. Type of Loan
Finally, one of the most important factors is the type of loan. While personal loans and mortgages can work well, getting a business loan suits more when applying for a loan as a freelancer.
An informed decision is important so consider all the above as a ‘checklist’ before finalizing a loan. What works for some freelancers might not work for others – it can all depend on the industry and years of experience. With that said, let’s compare the various business loan options for self-employed people.
Compare loans suited for freelancers / self-employed
Business loans have an advantage over other available options. Firstly, they could help with the operations and expansion of the business. But with so many business loan options it could be difficult to choose the self-employed loan that is the right fit.
Some popular options for considering a business loan as a freelancer or “self-employed-er” are as follows:
- Bank loan: A traditional bank loan has competitive interest rates and offers a range of repayment terms. However, strict requirements and collateral might take away the charm of the deal.
- Microloans: Microloans are small, short-term loans designed for small businesses and freelancers. These loans can be easier to qualify for than traditional bank loans, but they may have higher interest rates.
- Government loans: The government offers various loan programs for small businesses and freelancers. These loans can have competitive interest rates and flexible repayment terms, but they may also have strict requirements and take longer to apply for.
- Peer-to-peer lending: Peer-to-peer lending platforms allow you to borrow money directly from individuals rather than institutions. These loans can have competitive interest rates and flexible repayment terms, but they may also be harder to qualify for.
Conclusion of loan applications as a freelancer
As a freelancer or self-employed, there are several options for applying for a loan. There are several providers you can compare when applying for a freelancer loan. From banks to online loan providers. While doing so, pay attention to the tips indicated. Borrowing money as a self-employed person costs money. Tax-wise, it can be interesting, but you should want to consult your accountant about whether your sole proprietorship is solvent enough.