There are more than 16 million self-employed workers in the US, and many of them will require extra funding to support their business at some point in time.
Unfortunately, due to erratic income, the self-employed often have bad credit, which makes it more difficult for them to borrow. So what can these entrepreneurs do? Read on to discover everything you need to know about loans for self-employed with bad credit, and how to secure the funds you need.
The term ‘bad credit’ refers to a person’s history of not paying bills or loan repayments on time and the increased likelihood that they will fail to make timely payments in the future. In practice, bad credit really means a poor credit score – the calculation that lenders use to determine the default risk of any borrower. Most US self-employed workers are sole traders, freelancers, and gig workers. When they want to borrow money, lenders will typically check their personal credit score, (although some sole traders may also have a business credit score which is different from a personal credit rating).
If your score is too low – defined as having ‘bad credit’ – it can be more difficult to borrow money, especially at competitive interest rates.
In the US, most credit scores are provided by credit rating agencies. They hold credit records on most of the adult population and whenever a self-employed worker applies for credit, the lender will usually ask for a report from one or more of these agencies. Your score will usually decide if you can borrow any money, as well as the interest rate and fees you’ll pay, and, depending on the loan you are applying for – maybe you’re buying or leasing a new van for example – the size of the deposit you must provide.
So how does bad credit work for the self-employed? Each credit agency has their own scoring system. A very poor credit score n is generally between 0-560, and a poor credit rating is between 561-720.
What does it mean if your score is in the poor or very poor category? It means securing a self-employed business loan will be more challenging, but it’s not impossible. Specialist loans for self-employed with bad credit are available – see below to find out more.
Many business and financial activities can affect your personal credit score. The most common reasons that the self-employed end up with a bad credit score are:
Unfortunately, despite big promises from the many ‘fast credit repair’ businesses you may see online, there is no quick fix for a poor credit score. It takes time and good financial management to get a poor score back into the good category. Key actions to improve your credit score include:
Probably. Even if you have bad credit, or if you’ve been turned down elsewhere, it may still be possible to secure the funding you need.
Note that business loans for self-employed or sole traders with bad credit will usually incur a higher interest rate, and the sum you can borrow may be smaller. You may also have to put down a larger deposit. Alternatively, you can boost your chances of securing finance at lower rate and with a higher loan amount by adding a guarantor to the transaction – this is a colleague, relative, or friend who has good credit and agrees to guarantee loan repayment in case you default. You can also provide security in the form of a lien against property you own outright or are currently buying, or you could consider taking out a new commercial mortgage on a business property you own.
You can use a self-employed loan for almost any business purpose: Buy inventory to expand your business. Purchase new equipment or vehicles. Use the loan as working capital to pay regular bills, wages, and business rates. Or simply use the funds to pay off other more expensive loans and consolidate your business borrowing.
Most self-employed loan providers will ask to see your past two or three years’ trading accounts and tax returns, plus the last six months bank statements, a list of your major customers, and information on any existing loans or major outstanding debts.
Loans for self-employed with bad credit are a specialist financial area, with every lender having their own criteria and differing rules of application. Self-employed and sole traders seeking this type of funding may find themselves forever searching and making applications to lender after lender. The delays this can create could cause you to lose revenues or leave your business vulnerable to a damaging cashflow crunch. Instead, working with a broker, who can access self-employed loans from a wide range of lenders is a better way to go. No more cold calls and endless demands for information, simply tell us what you need and leave the rest to us.
Register with Swoop to find the best rates, the best terms and the best loans for the self-employed.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
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.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
Disclaimer: Swoop Funding LLC (“Swoop”) is a financial technology platform and commercial finance broker, not a lender. Swoop does not provide loans or make credit decisions. We match US-based firms with third-party lenders, equity funds, and grant agencies. All financing is subject to lender credit approval and the specific terms and conditions of the funding provider.
Broker Compensation Disclosure: Swoop provides its platform and matching services to applicants at no direct cost. We receive compensation in the form of a commission or referral fee from the finance providers in our network upon successful placement. This compensation may vary by provider and product. In certain instances, the commission paid to Swoop may influence the interest rate or terms offered by the lender, which can affect the total amount payable under your agreement.
Credit Authorization & FCRA Notice: By submitting an application or registering an account, you provide “written instructions” to Swoop under the Fair Credit Reporting Act (FCRA) to obtain your personal and/or business credit profile from consumer reporting agencies. This information is used solely to evaluate your eligibility for financing and to match you with appropriate lenders in our network.
State-Specific Disclosures:
Florida & Utah: Swoop complies with state commercial financing disclosure laws regarding the transparency of terms for non-real estate secured commercial transactions.
Entity Information: Swoop Funding LLC is a Delaware limited liability company. US Headquarters: 43 W 23rd St, New York, NY 10010, United States. Contact: hello@swoopfunding.com
General Terms: Applicants must be 18 years of age or older. All firms must be registered and operating within the United States. SBA loans are issued by private lenders and guaranteed by the U.S. Small Business Administration; Swoop is not a government agency. Please review our Terms of Use and Privacy Policy for full details.
If you have a complaint, please refer to our Complaints Policy.
UK
IRE
AU
CA
US
ZA
NA
yet? Register here!