SBA loans for self-employed and independent contractors

Self-employed workers or independent contractors looking for funding may consider loans from the U.S. Small Business Administration (SBA). SBA loans can be used for a number of small business needs, including paying for marketing, expanding inventory, or buying equipment.

Find out who qualifies as self-employed, which SBA loans may be available and how to qualify.

Page written by Kat Cox. Last reviewed on April 12, 2024. Next review due October 1, 2025.

Who qualifies as self-employed?

Because the SBA deals with small businesses, they don’t provide a definition of “self-employed” workers. But the Internal Revenue Service (IRS) defines anyone as self-employed if:

They are a sole proprietor or independent contractor for a trade or business
They are a member of a partnership in a trade or business
You work for yourself either part-time or as a gig worker

Usually business owners who have a limited liability company (LLC) and are sole proprietors or partnerships qualify as self-employed.

In order to qualify for a small business loan from the SBA, you will need to have an official business designation, such as an LLC. Because SBA loans are meant for businesses with fewer than 1,500 employees, anyone who is self-employed or a sole proprietor for an LLC may be able to qualify.

Does this apply to independent contractors?

If you’re an independent contractor but don’t have a business designation like an LLC or an incorporation, you won’t be able to qualify as a small business for any SBA loans.

Are self-employed SBA loans hard to get?

SBA loans are extremely popular because they’re backed by the U.S. federal government. They also tend to have longer application times and stricter qualifications, like a relatively good credit score, a few years in business and good annual revenue. But if you meet the lending criteria and are willing to put in a little leg work, SBA loans aren’t necessarily difficult to get.

What is the application process?

To apply for an SBA loan while self-employed, you should follow these steps:

Look at your credit score. Your credit scores from Equifax, Experian and Transunion are the number one place lenders look to determine if you’re safe to lend to. Your personal score should be at least 680 to qualify for SBA loans.
Check your business plan. If you haven’t drafted one already, put one together, as this is something that lenders will look at to determine your creditworthiness.
Figure out which loan you want to apply for. We go into detail on the types of SBA loans you may be interested in below.
Find a lender. The SBA works through lenders, like credit unions and banks, to finance their loan programs. The SBA has a Lender Match tool that can find you lenders in your zip code.
Get your documents together. You’re going to need a number of documents to apply for an SBA loan. These will vary depending on which lender you apply with, but you can expect to need to supply business and personal tax returns, financial statements and any outstanding debts, as well as identification and business documents.
Figure out your collateral. Some loans don’t require collateral, but for the ones that do, you’ll need to make sure you have it available. This can include the business itself, equipment and inventory or savings accounts or investments.

What types of SBA are available for the self-employed

There are a number of SBA loans you might qualify for if you’re self-employed.

SBA microloan

As the name suggests, an SBA microloan is a smaller business loan than traditional loans. SBA microloans lend up to $50,000 with an interest rate ranging from about 8-13% with a maximum repayment term of six years. Because they’re administered by a variety of lenders, your qualifications will differ depending on your lender. You can expect to need to provide collateral and a personal guarantee on top of the other qualifications, though.

SBA 7(a) small loan

As the most popular SBA loan, you can get up to $5 million from the 7(a) program if you qualify. You will need to have tried other sources of funding before applying for the loan. The SBA 7(a) loan can be used for commercial property, working capital and even inventory. The loan is variable based on a base rate plus anywhere from 2.25% to 4.75% depending on how much you borrow and the loan terms. You can expect a repayment term of up to 15 years for commercial real estate and 10 years for other types of loans.

SBA Express loan

As part of the SBA 7(a) program, the SBA Express loan is meant for small businesses who need cash fast. The SBA responds to these loan applications within 36 hours, which is much faster than the typical week it takes for other SBA loans. You can get a loan for up to $500,000 with an interest rate that won’t exceed the prime rate plus 6.5%. Repayment terms vary based on the type of loan you get, but can be 25 years for real estate loans, 10 years for other loans and seven years for a line of credit.

SBA loan alternatives

If you don’t qualify for an SBA loan or need something faster, there are a few alternatives you may consider.

Crowdfunding

Many small business owners choose crowdfunding to finance their businesses. With crowdfunding, you may ask a group of investors or even friends or family to buy into your business, either by promising them early access to a product or by giving them equity in your business. This is a particularly easy way to get money if you’re a sole proprietor or partner in a small LLC.

Business credit cards

While not technically a loan, business credit cards can help independent contractors or self-employed business owners finance purchases for their businesses. You can also find a business credit card that has rewards, rebates or perks that match your small business’s needs. Small business credit cards can be a good way to fund your business while you build up credit or time in business to apply for a loan later. Just make sure you can afford the minimum monthly payment and be aware that the interest rate on credit cards can be very high if you don’t pay it off entirely every month.

Online loans

If you can’t qualify for traditional loans, there are loans meant for startups and other small businesses. Online loans tend to have much shorter application processes and funding times, as well as somewhat looser qualifications or requirements. However, they also tend to come with shorter repayment terms and higher interest rates, so it’s important to read the fine print and make sure you can afford the loan before you apply.

Deciding which is right for your business

Every self-employed person will have different needs for their business, so finding the right loan means asking yourself the right questions. A few you should consider include:

How much money do I need? Determining how much money you need to fund your project will help you decide which loan or other type of financing is best for you. At the same time, you should keep in mind how much money you can realistically afford to pay back.
What do I need the money for? Different lenders have different rules on what you can use the loan for. If you need money for working capital or equipment, you’ll probably apply for a different loan than commercial real estate, for instance.
What can I qualify for? Take a good hard look at your credit score, years in business and annual revenue to help determine what you can qualify for. Most SBA lenders will want a credit score of at least 680 with two years in business and good finances in order to lend to you. Online lenders or business credit cards may be a better option if you don’t meet those requirements.

To work out the monthly repayments of your loan, use our SBA loan calculator here.

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Written by

Kat Cox

As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.

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