Getting short-term finance can be challenging if you cannot prove where your next lot of money is going to come from. No matter how successful you are as a freelancer, a contractor, or a freelancer, there will always be hurdles to overcome.
That’s why, in this article, the 786 Loans team explain 10 things you should know about applying for a loan when you’re self-employed:
Self-employed people generally have fewer options
The first thing that you need to know is that, as a self-employed person, there will be fewer lenders who are willing to work with you. This is simply because there is more risk attached in lending money to you because many self-employed people don’t have a dependable, regular, static income. Even if this is not the case for you personally, lenders will still be more cautious about providing you with a loan.
However, you can still find a loan that suits you
This isn’t to say that you won’t be able to find a loan provider who is willing to work with you. Self-employed people who can prove that they are able to make the repayments are often looked at as more reliable than employed people who cannot prove that they can make their repayments.
You can still apply for short-term loans
Short-term loans are still an option for self-employed people. And the reasons that you might want to take one out are much the same as anyone else. Just because you’re self-employed doesn’t mean that you’re immune to having the problems of people with regular full-time jobs like a car breakdown that needs paying for straight away.
You can still apply for payday loans
On a similar note, you are still able to take out payday loans. Naturally, because your payday works differently to those earning a regular monthly income, your one-off repayment is made at a time agreed upon by you and your lender. In that respect, payday loans are exactly the same for those who are self-employed.
You can still apply for Guarantor loans
Guarantor loans are popular for self-employed individuals who are looking for finance. This is because a guarantor will vouch for you to say that you are able to make the repayments. Guarantors also step up and make any repayments that you cannot, meaning that the lender has an additional level of security that they otherwise would not get when approving self-employed people’s loans.
However, many people don’t feel comfortable with the idea of asking someone to guarantee a loan, whether they’re self-employed or not. If you fail to keep up repayments on a guarantor loan and your finance company asks your guarantor for the money instead, this can put a lot of strain on any relationship you have with them.
It is unlikely that you can be somebody else’s guarantor
Guarantors typically need to have an exceptionally high credit rating and proof of a reliable stream of income. Although both of these criteria can still apply to self-employed people, you would need an accountant to verify your income if you offer to be a friend or a family member’s guarantor.
It is worth mentioning that every loan provider has their own criteria, so some companies might allow you to be a guarantor where others might not.
You may need to provide a bank statement
When it comes to verifying the amount of money that you have and the amount that you receive on a regular basis, you might be asked to provide a bank statement. This is so that the loan provider can verify that you can pay back the loan.
This is done for the benefit of the borrower because it is better to be declined for a loan than it is to be accepted for one that you cannot pay back.
You will still need a good credit score
A good credit score will increase your chances of being accepted for a short-term loan, no matter what your employment circumstances. But this is more important for self-employed people than anyone else. Because of the lending options that are available to self-employed people, the more attractive you can make yourself to a potential lender, the better.
There is no better way to increase your chances of your application being accepted than by having a good credit score. This shows the lender that you have a proven record of paying back your credit. Combine your credit score with your credit history and this means that the lender will be able to see that your payments in the past have been made on time and in full.
A bad credit score isn’t the end of the world
Even if you don’t have the best credit score, there are still options available to you. There are many lenders who specialise in dealing with self-employed people with a bad credit rating who are looking for a short-term loan that will be more than happy to consider your application.
The loans that will be available to you may be of a slightly higher APR than if you had a clean credit record, but they will still give you access to the finance that you need.
You can’t put cash into your business with a payday loan
Speaking of the finance that you need, you cannot use a short-term loan, payday loan, or guarantor loan to put extra money into your business. The loans must be for personal use only. If you’re looking for ways to put more money into your business, consider a more traditional financing option such as a bank loan, investment, or crowdfunding.
Short-term lending with 786 Loans
If you’re self-employed and you’re looking for short-term finance, try 786 Loans. We are a loan broker, not a direct lender. This means that, once you make your application with us, we send it out to our network of lenders and bring you their best quotes.
It starts will filling out our application form. This is where you tell us how much you would like to borrow and how long you would like to borrow the money for. Once we’re happy that you can make the repayments, we will then send your details and a copy of your credit report to the loan providers that we work with which will be happiest to work with you. They will review your application and make you an offer. This all happens within seconds.
Self-employed no matter what your credit history? Apply now with 786 loans to find the right loan for you.