Self-employed business loans can provide a vital safety net for freelancers, sole proprietors and independent contractors – covering dips in cash flow, paying unexpected expenses or allowing self-employed entrepreneurs to take their business to the next level and beyond.
Use a self-employed business loan to:
Self-employed borrowers can usually get the same types of business loans as larger organisations, although this type of financing may require you to provide collateral or at least a personal guarantee.
Here’s a rundown of the most popular types of self-employed small business loan:
Key benefit: Lower borrowing costs
Most bank loans come as term loans where you borrow a lump sum and then pay it back in regular instalments. Interest charges and fees on bank loans tend to be lower than finance from other lenders, but to get this type of loan you will typically need a good credit score (680+), steady revenues and at least two years in business. Collateral may be required.
Key benefit: Easier approval, fast application processing
If you don’t have the necessary time in business or sufficient credit score or revenues to obtain a bank loan, you may do better to apply for a term loan or other type of self-employed small business loan from online or alternative lenders. These providers tend to move faster, have more relaxed qualifying rules and offer a wider range of loan options for self-employed business owners than traditional banks. You may even be able to get the funds you need with a score in the 500s, only a few months in business and erratic revenues. Collateral may be required.
Key benefit: Maximum flexibility
A business line of credit functions like a high-value credit card but comes with lower interest rates and fees. Self-employed borrowers can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. You only pay interest on the amount you withdraw, not the whole credit line. This kind of financing is ideal for independent business owners that want maximum financial flexibility and lower borrowing costs. Collateral may be required.
Key benefit: As your sales grow, your credit limit increases
Available for self-employed businesses that accept customer payments by credit and debit card. A cash advance is borrowed against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your card sales act as security, no added collateral is required.
Key benefit: Get paid in hours or a few days instead of waiting weeks
Also known as account receivables financing, invoice financing allows self-employed businesses to borrow against the value of their unpaid invoices. The lender may provide up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as security, no added collateral is required.
Getting a business loan when you’re self-employed is seldom easy, but you can improve your chances of loan approval by following these steps:
If you can’t qualify for, or don’t want a self-employed small business loan, you may be able to get the funds you need from an alternative source:
No approvals are necessary to withdraw money from your personal credit card account. However, you may have a daily cash withdrawal limit and you could pay cash advance fees and ATM fees to access the money. Credit card cash advances also usually have a higher interest rate than standard card purchases.
If your home is worth more than you owe on it, or you own the property outright, you could get a home equity loan. This type of financing will give you a cash lump sum and use your home as collateral for the loan. Repayment terms on home equity loans can be as long as 10 years or more. However, your home is at risk if you fail to make your payments.
Many self-employed business owners borrow money from family and friends, especially when they are trying to get a new venture off the ground. However, using funds from loved ones can often be a source of contention if the ground rules are not clear from the beginning. If you have access to this type of financing opportunity, make sure your funders know if they are providing a loan, a gift or an investment from the start. If there are plans to pay the money back, put this down in writing with a clear repayment schedule – including a plan of action if things do not turn out as expected and you cannot pay the funds back on time, or at all.
No matter if you’re seeking your first self-employed loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for your funding. Contact Swoop to discuss your borrowing needs, get help with your application and compare high-quality self-employed loans from a choice of lenders. Give your business the financial boost it deserves. Register with Swoop today.
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