Self-employed business loans

Self-employed borrowers can usually get the same types of business loans as larger organizations, 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: 

Bank loans

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 FICO credit score (680+), steady revenues and at least two years in business. Collateral may be required.

Online lender loans

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 FICO score in the 500s, only a few months in business and erratic revenues. Collateral may be required.

SBA loans

Key benefit: Lowest rates and long repayment terms

SBA loans are provided by lenders who are part of the federal government’s Small Business Administration (SBA) lender network. SBA loans usually have lower interest rates and fees than other forms of commercial lending and you can pay the loan back over as long as 25 years. However, to obtain an SBA 7a or SBA express loan you will usually need a FICO score of 680+, at least two years in business and annual revenues of more than $180,000. If you can’t meet these requirements, you could apply for up to $50,00 with an SBA microloan. Self-employed borrowers may be able to get this type of funding with FICO scores as low as 500, or even with no credit score at all. Collateral may be required.

Business line of credit

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.

Merchant cash advance

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.

Invoice financing

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.