Why is it so hard to get a loan when self-employed?

Getting a loan when you're self-employed can be challenging because lenders often require more documentation and proof of income than they do from traditionally employed borrowers to ensure that your business generates enough income to cover the loan repayments. This usually means providing bank statements , tax returns, and detailed business information. Additionally, the fluctuating nature of self-employment income can make it harder to demonstrate consistent earning capacity, which is a key factor for lenders.

Can you get a cash advance if you're self-employed?

Yes, you can get a cash advance if you're self-employed. Many lenders offer cash advances or other forms of financing to self-employed individuals, although the terms and conditions might differ from those for traditionally employed borrowers. Options include unsecured loans , secured loans , and guarantor loans, each with varying requirements and interest rates. It’s important to have a good credit score and be prepared to provide comprehensive financial documentation to secure the best rates and terms.

What income do lenders look at for self-employed?

Lenders typically look at a variety of income sources when assessing loan applications from self-employed individuals. This includes: Bank statements : Usually from the last three years, to show consistent cash flow. Tax returns : Including the notice of assessment and tax returns for the past two years. Company/business information : Such as incorporation documents, an overview of the business, a list of major clients, and a balance sheet and cashflow forecast if available. Proof of other income : This can include dividends, bonuses, or rental income. These documents help lenders gauge the financial health and stability of your business, ensuring that you can manage loan repayments.

Self-employed loans for small businesses

HELCO

A Home Equity Line of Credit (HELCO) is an option for self-employed individuals who own their home and have built up equity. This type of loan allows you to borrow against the value of your home, using the property as collateral. HELCOs typically offer lower interest rates compared to other unsecured loans because they are secured by your home. The flexible nature of a HELCO allows you to borrow as needed, up to a predetermined limit, and pay interest only on the amount you use.

LOC

A Line of Credit (LOC) is another flexible financing option for self-employed individuals. With a LOC, you can borrow up to a certain limit and only pay interest on the amount you actually use. This type of loan is particularly useful for managing cash flow, covering unexpected expenses, or taking advantage of business opportunities as they arise. Lines of credit can be unsecured or secured, with secured lines often offering lower interest rates.

Cash advances

Cash advances provide quick access to funds and are typically based on your business’s future credit card sales. This type of financing is often used to cover short-term cash flow gaps or emergency expenses. While cash advances can be easy to obtain and provide immediate funds, they usually come with higher interest rates and fees. It’s important to carefully consider the costs and terms before opting for a cash advance.