It’s harder to get a Personal Loan if you are a business owner or contractor. It is way more complicated and requires more process than the usual employee. Fortunately, you can still get a loan with favorable terms. Here are some tips about getting a personal loan for self-employed.
Proving Your Income
According to a Senior Financial Analyst Megan Hanna, “The foundation of getting a personal loan whether you own a business or not is your ability to repay what you borrow. “How lenders document your repayment ability varies not only by employment status but, more significantly, by the reason you need the funds. Lenders will also consider what (if any) collateral you have to offer and your loan size.”
Proving your income sometimes can be complicated. Because as a business owner or a contractor, the requirements may depend from one lender to the next.
Here are some documents that you may need to provide:
• Business Documents- Not all lenders may require this document. But this is one of the documents that prove that you are legally operating your business. It includes a state registration, business license, and other related documents.
• Bank Statements- You need to provide the last 3 months of your bank statements for your personal bank accounts.
• Financial Statements- Lenders will check your profit and loss statement together with your balance sheet.
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• Tax returns- You have to show the lenders your returns from the last two years.
• Lease Agreements- When your income is primarily from renters, you need to provide lease agreements. You must also need to show your expenses because the lenders will check on that.
Some Options To Consider
It may be hard for a self-employed to get enough documentation to prove your income. According to Hanna “If your annual self-employment fluctuates from year-to-year, you may still be able to get approved for a personal loan.” For Hanna there are still chances of getting approved.
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Here are some recommendations:
• Keep your Personal Credit excellent
• A good financial records
• Maintain a lot of liquidity
• Try to avoid a high level of leverage
• Develop solid projections
Cosigner or Collateral maybe a big help to get a loan. This is what you need to know about cosigner or collateral.
This is just a typical cash savings account that can also be a physical asset like a vehicle. Offers may vary to every lender. Some lenders offer secured personal loans that will allow you to put up collateral for your debt.
It is also called a co-applicant who applies for the loan with you. Lenders may consider both of your income and credit worthiness. So if there’s a chance that you don’t qualify alone, a cosigner can be a big help. Though, the cosigner will be equally accountable in paying the debt. If you fail to pay the debt, the cosigner’s credit history will be affected. Don’t break their trust. It is very important that you and your cosigner has a good relationship.
5 Best Personal Loans for Self-Employed
Online Lenders can be a better option if you want to apply for personal loan. Lenders may have fewer requirements regarding income documentation.
SoFi can provide you with a low fixed interest rate, but you have to have a good or excellent credit score. You also have to provide all the right documentation. They offer different payment terms and high loan amount.
You’ll get to access several other benefits once you’re a member. Other benefits may include career coaching, lower rates on future loans, unemployment protection and more.
If you have affair credit or better, then this is a better option. It allows cosigners if you have a hard time proving your income or your credit is not in great shape. The lender offers good repayment terms and small-dollar loans and large loan amounts as well. However, there’s an origination fee which the lender deducts from your loan balance.
It is similar to Sofi because it also offers low-interest personal loans with good or excellent credit. You can borrow a lot and you can get favorable repayment terms based on your loan amount. There are no fees or charge in the origination fee.
This loan is designed to pay off credit card debt. They consolidate high-interest credit card debt if you have good or excellent credit.
This loan gives you a better chance to get a loan. They allow you to apply with a cosigner to help you if your credit is not in good shape. It is way easier because it has relatively low-income requirements.
Important Notes To Consider
Applying for a Personal loan as a self-employed requires some extra work and effort. You can make it easier if you have excellent personal credit and proper documentation. Also, you have to consider a cosigner. A cosigner can help you lessen your documentation requirements. You can reach out to different lenders to get an idea of what they can do for you.
Cover Photo Credits: NSW Mortgage Corp