Self-employed business loans

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on March 13, 2024. Next review due October 1, 2025.

    What are business loans for self-employed borrowers?

    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:

    • Support your cash flow
    • Buy equipment, materials and inventory
    • Pay utilities and suppliers
    • Buy a new vehicle
    • Cover taxes
    • Expand your operation or acquire a new business
    • And more
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      How loans for self-employed borrowers work

      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.

      How to get a loan when you're self-employed

      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:

      1. Proof of steady revenues: Lenders like to see your income is steady and profitable. If your income is seasonal or erratic, you will need to show how you successfully manage your expenses to get through the slow periods.
      2. Choose a lender that works with the self-employed: Do your homework – or use a loan marketplace that can provide a wide range of options – to find a lender with a solid history of providing loans for freelancers and sole proprietors.
      3. Compare offers: Once again, use a loan marketplace, or prequalify with multiple lenders to see a range of offers from different providers before settling on a deal. Prequalifying allows you to see what types of funding you can get without adding a hard search statistic to your credit report.
      4. Provide collateral: Lenders may approve you faster and give you a better offer if you provide collateral for the debt. This will usually mean you offering real estate, land or assets such as equipment and machinery as security. Be aware that your collateral is at risk if you don’t keep up your loan repayments.

      What are the alternatives to self-employed business loans?

      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:

      Credit card cash advance

      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.

      Home equity financing

      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. 

      Loans from family or friends

      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.

      Get started with Swoop

      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.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

      To read our editorial policy, please click here.

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