Did you know that, according to the Office for National Statistics, the number of self-employed people in the UK has rocketed from 3.3m in 2001 to 4.8m in 2017? That means that 15% of the British workforce is self-employed – a record in modern times.
Traditionally, not having secure employment has prevented millions of Brits from being able to access short-term loans. But that’s changed a lot in the last ten years. There are some companies offering the self-employed, contractors, and freelancers unsecured short term loans without a guarantor and other companies offering to lend entrepreneurs money to buy stock in for their eBay- or Amazon-based business.
Although the outlook has got a lot better for the self-employed in the last few years, there are still fewer options available to contractors, freelancers, and company directors than there are to people in full-time employment. Why is that? It’s because employed members of staff have a regular and predictable income whereas income and what the self-employed earn is much more likely to experience peaks and troughs with the ebb and flow of trading.
In this article, the 786Loans team look at short term loans for the self-employed and, in particular, short term loans without a guarantor for contractors, freelancers, and company directors.
What types of loan can a newly self-employed person get?
There are six types of short term loan available to you as a newly self-employed person. By newly self-employed, we mean that you can’t show a potential two years’ worth of accounts to demonstrate whether you’ve been profitable or not.
Those six types of loan are:
With a payday loan, you can borrow from £50 up to around £1,000. The actual total amount you can borrow depends on your personal circumstances and the relationship you have with the payday lender. If you have successfully paid back in full and on time payday loans to a provider previously, you’ll have a good track record with them meaning that they’re likely to trust you with more.
You pay the amount of money you’ve borrowed plus the interest all in one go, normally on your next wages day or within a 30-day period. Payday loans are expensive and they should only be used in emergency situations when you’ve received an unexpected bill. Payday loans are unsecured and you don’t have to own your own home to take one out.
Short term loan
For many self-employed people, a payday loan might put too much pressure on them and their finances to pay everything back all at once. In those circumstances, you might choose a short-term loan. Short-term loans are for between £100 and £2,500. As with payday loans, how much you can actually borrow depends on your personal circumstances and on any previous relationship you have with a lender.
Short-term loans are paid back within a period of 2 to 12 months with repayments normally collected every month on a date that you nominate. Because you’re borrowing money back over a longer period, the amount you pay in interest is higher on your loan but the actual amount you’ll pay out of your bank account every month will be smaller. As with payday loans, you’re not at risk of losing your home should you be unable to repay your lender and, to reflect that fact, the interest rate you’ll pay will be much higher than with a bank loan.
Short term loan with guarantor
Short-term loans with a guarantor allow you to borrow much higher sums of money – up to £15,000 over up to 5 years. A guarantor is someone you nominate and someone your lender accepts who will pay back the loan on your behalf if you can’t make the repayments.
Compared with standard personal loans from a bank or building society, the interest rates charged are substantially higher. While guarantor loan companies are happy to accept applications from self-employed people with poor credit, your guarantor must have a very good credit rating.
Secured short-term loan
A secured loan is taken out on the amount of equity in your property if you own a home or an apartment. Your equity is the difference between the value of your home and the size of your mortgage remaining.
You are at risk of losing your home if you don’t keep up repayments with a secured loan. Secured loans are far more complicated than unsecured loans and, as a result, it can take two weeks for you to receive your money once you’ve made an application.
Interest rates on secured loans are traditionally low.
When you take out a logbook loan, you can borrow up to 75% of the value of your car and pay it back within 3-5 years. When you sign the documents, your car becomes the property of the logbook loan company and ownership transfers back to you when the loan is fully repaid. If you don’t keep up repayments, you will lose your car. As a self-employed person, the loss of your vehicle may severely impair your ability to earn money.
A pawnbroker will lend money to you secured against one or some of your possessions – including jewellery, white goods, entertainment equipment, and so on. You receive your goods back once you have repaid your loan in full, however, if you can’t keep up repayments, your pawnbroker will then try to sell your valuables to someone else.
Will I need a good credit score?
Thankfully, the days of needing near perfect credit scores to obtain a self-employed short-term loan are gone. There are now specialist lenders who are happy to work with self-employed contractors, directors, and freelancers.
Generally, the longer you have been in business and the more years you can produce accounts for, the more you can borrow and at a lower interest rate. However, competition among lenders for the newly self-employed is intense and you should shop around to get the best interest rate.
Will I need a guarantor?
The only lenders who will require a guarantor are the lenders offering guarantor loans. The vast majority of lenders do not require a guarantor. There are many lenders who are happy to work with the self-employed even if you have a bad credit rating who don’t entertain the idea of guarantors.
If you take out a short-term loan with a guarantor and your guarantor then has to step in to make repayments on your behalf, this could badly affect your future relationship with the guarantor, particularly if they are family or friends. You should consider finding out what short-term loans are available to you first that don’t require a guarantor.
Applying for a self-employed short term loan through 786Loans
Here at 786Loans, we help the self-employed get access to the very best value payday loans and short terms loans in the market. We don’t believe in guarantor loans, we think they’re unfair, and, for those reasons, we don’t offer them.
786Loans is a credit broker and not a lender. What that means for you is that we have a panel of Financial Conduct Authority-licensed lenders happy to work with self-employed people with short-term loans. We don’t charge you a penny for our service and you’re under no obligation to take out a loan from us.
Within seconds of receiving your application, we’ll contact the lenders who we think will be happiest to work with you. Once we’ve received back their offers, we’ll present you with what we think is the very best deal. If you’re happy with what we’ve found you, simply sign the online application form and you’ll enter an agreement with the lender. It’s simple and it takes no time at all.
To start your application, please click here.