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Securing Personal Loans for the Self-employed: A Comprehensive Guide

Are you self-employed and looking for personal loans? The process can seem daunting, but with the right knowledge, it becomes straightforward. We provide you with essential information about eligibility, documentation, and more, helping you secure the financial support you need.
Offers: 4
Updated:
28.02.2024
08:41
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LightStream
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up to 144 months
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The Legal Status of Personal Loans in the USA

In the USA, personal loans are legal and typically used for non-business needs. They must be repaid according to the loan agreement, which includes interest and a repayment timeline. Various laws regulate these loans, including the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Truth in Lending. These laws protect both the lender's interests and the borrower's rights, ensuring fairness and transparency in the lending process.

Reviews
CreditFresh
4.8
The application process was a breeze, and I received a response within minutes. This straightforward and prompt procedure proved to be a great help to me during a crucial time of need.
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JG Wentworth
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The assistance I received was exceptional. My representative handled my case with care and provided all the necessary information...
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OneMain Financial
4.4
The loan application process was straightforward, and the representative I interacted with displayed patience, provided informative answers, and was quite pleasant throughout...
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My Funding Choices
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The process was swift and straightforward, which was particularly helpful during a time when, despite my reluctance to seek assistance, I genuinely needed help.
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Plain Green Loans
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The interest rate is shockingly high, and it feels like taking advantage of individuals facing financial challenges when unexpected expenses arise...
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Advance America
4.6
I have never encountered any issues with this company. They consistently deliver funds on time, and the repayment process is straightforward...
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Securing Personal Loans for the Self-employed: A Comprehensive Guide

What are Personal Loans for Self-Employed?

Personal loans for self-employed individuals are financial products designed to fund self-employed individuals. These loans can be used for various purposes, such as business expansion, debt consolidation, home improvements, education expenses, or personal needs.

Unlike loans for salaried employees, personal loans for self-employed individuals consider their unique financial situation, including irregular income or varying cash flow. These loans provide flexibility in loan amount, repayment terms, and utilization of funds.

Self-employed individuals can typically apply for personal loans from banks, credit unions, online lenders, or alternative lending platforms. The loan terms, interest rates, and eligibility criteria may vary depending on the lender's and borrower's creditworthiness.

Features

  1. Loan Amount. The loan amount available to self-employed individuals can vary depending on factors such as creditworthiness, income level, and the lender's policies. The loan amount may range from a few thousand dollars to a substantial sum, enabling borrowers to address their financial needs effectively.

  2. Interest Rates. Personal loans for self-employed individuals come with either fixed or variable interest rates. Fixed rates remain constant throughout the loan term, while variable rates may fluctuate based on market conditions. The interest rates can vary depending on the borrower's credit history, income stability, and the lender's risk assessment.

  3. Loan Term. The loan term refers to the duration over which the loan must be repaid. Personal loans typically have terms ranging from one to five years, although longer terms may sometimes be available. The loan term can affect the monthly repayment amount, with longer terms resulting in lower monthly payments but potentially higher overall interest paid.

  4. Collateral and Unsecured Options. Personal loans for self-employed individuals can be secured or unsecured. Secured loans require collateral, such as property or assets, which can be seized by the lender in case of default. Unsecured loans do not require collateral but may have higher interest rates to compensate for the increased risk to the lender.

  5. Documentation Requirements. Self-employed individuals generally need to provide additional documentation compared to salaried employees. Lenders typically require proof of income, such as bank statements, tax returns, profit and loss statements, and business financial statements. These documents help lenders assess the borrower's income stability and repayment capacity.

  6. Repayment Schedule. Personal loans for self-employed individuals usually have fixed monthly installment payments over the loan term. Borrowers are required to make regular payments on time to repay the loan.

  7. Credit Assessment. Lenders assess the creditworthiness of self-employed borrowers by considering factors such as credit history, credit score, and income stability, retrieving corresponding information from credit reporting agencies. A good credit history and higher credit score can improve the chances of loan approval and potentially result in more favorable loan terms.

Pros and cons

Pros

Flexibility. Personal loans offer flexibility in terms of how the funds can be used. Self-employed individuals can utilize the loan amount for various purposes, whether it's for business needs, personal expenses, or debt consolidation.

Access to Funds. Personal loans provide access to immediate funds, allowing self-employed individuals to address their financial needs promptly. This can be particularly beneficial for unexpected expenses or business opportunities that require quick capital.

No Collateral Requirement. Many personal loans are unsecured, meaning they don't require collateral. This can be advantageous for self-employed individuals who may not have valuable assets to pledge as collateral.

Simplified Application Process. Personal loans often have a streamlined application process, especially for online lenders. The application can be completed conveniently from home, and the approval process is generally faster than other loan types.

Cons

Documentation Requirements. A self-employed person typically faces more rigorous documentation requirements than salaried employees, including tax returns, profit and loss statements, and bank statements.

Higher Interest Rates. Some lenders may offer higher interest rates to self-employed workers than salaried individuals due to perceived higher risk.

Limited Borrowing Amount. A loan when you're self-employed may be limited in amount based on income level and business financials.

Personal Liability. Personal loans for self-employed individuals are often based on personal credit and income, making the borrower personally liable for repayment.

How can a self-employed individual apply for a personal loan?

Apply for a loan

  1. Prepare Financial Documentation. Gather tax returns, profit and loss statements, bank statements, and other relevant documents to verify income and business stability.

  2. Calculate Your Debt-to-Income Ratio. Determine your debt-to-income ratio by dividing your total monthly debt payments by your monthly income.

  3. Research Lenders Specializing in Self-Employed Borrowers. Look for lenders experienced in working with self-employed individuals or offering tailored loan products.

  4. Compare Loan Offers. Obtain quotes from multiple lenders and compare interest rates, terms, fees, and repayment options.

  5. Complete the Loan Application. Fill out the loan application accurately, providing information about your self-employment and financial situation.

  6. Submit Required Documentation. Compile and submit the necessary financial documents along with the loan application. As a self-employed individual, it's important to be prepared with additional documentation when applying for a loan. This may include tax returns, profit and loss statements, and bank statements. Ensure you have all the necessary paperwork to provide to the lender.

  7. Review and Accept the Loan Offer. Carefully review the loan terms and conditions, then accept the offer if it aligns with your needs and financial capability.

Requirements and conditions

  1. Income Documentation. Lenders typically require you to provide documentation to verify your self-employment income. This may include tax returns (both personal and business), your profit and loss statement, bank statements, and invoices.

  2. Minimum Income Threshold. Lenders may have a minimum income requirement for a self-employed borrower. This threshold ensures that you have sufficient income to meet your loan obligations.

  3. Business Stability. Lenders often look for self-employed borrowers who have been in business for a certain period, typically at least two years. This demonstrates business stability and longevity.

  4. Good Credit Score. A good or excellent personal credit score is important for loan approval and favorable loan terms. Lenders assess your creditworthiness by reviewing your financial records, credit score, or your business credit history. Aim for a strong credit score by managing your debts responsibly and making timely payments.

  5. Debt-to-Income Ratio. Lenders consider your debt-to-income ratio, which compares your monthly debt obligations to your monthly income taking into account your business expenses. This helps them determine your ability to handle additional debt. A lower debt-to-income ratio generally increases your chances of loan approval.

  6. Documentation of Business Structure. Lenders may request documentation to verify the legal structure of your business, such as your business license.

  7. Loan Purpose. Some lenders may ask for information about the purpose of the loan, especially if it is business-related. Providing details about how the loan will be used can help lenders assess the viability of the loan and your repayment plans.

  8. Loan Fees and Interest Rates. Understand the fees associated with the loan, including origination fees, processing fees, and any other applicable charges. Additionally, be aware of the interest rates the lender offers, as they can significantly impact the overall cost of borrowing.

  9. Repayment Terms. Review the repayment terms and conditions carefully, including the loan duration, monthly installment amount, and any prepayment penalties. Ensure that the repayment schedule aligns with your financial capabilities.

Best places to get a Personal Loans for Self-Employed Individuals today 28.02.2024

Small Business Administration

Apply for a loan

The SBA provides various loan programs, including the SBA 7(a) Loan Program, which offers funding for self-employed individuals and small business owners. These loans are backed by the government, making them more accessible to self-employed individuals who may not meet traditional lending criteria.SBA

Accion

Apply for a loan

This nonprofit organization provides small business loans to underserved entrepreneurs, including self-employed individuals. They offer flexible loan options and provide support to help borrowers succeed.Accion

Funding Circle

Apply for a loan

Funding Circle is an online lending marketplace that connects small business owners, including self-employed individuals, with investors. They provide business loans with competitive rates and flexible repayment terms.Funding Circle

LendingClub

Apply for a loan

LendingClub is a peer-to-peer lending platform that allows individuals to borrow money from investors. They offer personal loans that can be used for self-employed business purposes, such as working capital or debt consolidation.LendingClub

Self-Help Credit Union

Apply for a loan

This community development financial institution (CDFI) provides loans and financial services to underserved individuals and businesses. They offer loan products tailored to the needs of self-employed individuals and small business owners.Self-Help Credit Union

Ways to receive the money

  1. Direct Deposit. Once your loan application is approved, the lender can deposit the funds directly into your bank account. This provides quick and convenient access to the loan amount, allowing you to use it as needed.

  2. Check or Bank Draft. Some lenders may issue a check or bank draft for the loan amount. You can deposit or cash the check, providing the necessary funds to utilize it according to your requirements.

  3. Wire Transfer. In certain cases, lenders may offer wire transfers as a funding option. This method allows for the immediate transfer of funds directly into your bank account, ensuring prompt availability for your financial needs.

  4. Prepaid Debit Card. Instead of depositing the loan amount into your bank account, some lenders may provide a prepaid debit card loaded with the approved loan amount. You can use the card for purchases, withdrawals, or other transactions.

  5. Payment to Creditors. When consolidating debt or paying off specific creditors, the lender may directly pay the outstanding balances on your behalf. This streamlines the process and ensures the loan amount is used for its intended purpose.

Things to pay attention to

  1. Assess Your Financial Situation. Evaluate your income stability, cash flow, and overall financial health. Consider whether taking on additional debt is feasible and fits within your budget.

  2. Documentation Requirements. Familiarize yourself with the documentation needed for loan applications as a self-employed individual. This may include tax returns, profit and loss statements, bank statements, and other financial documents. Ensure you have all the necessary paperwork in order before applying.

  3. Repayment Plan. Develop a clear repayment plan and assess your ability to make timely payments. Consider how the loan payments will fit into your existing financial obligations and cash flow.

  4. Research Loan Options. Explore various loan options available for self-employed individuals. Look for lenders that specialize in working with self-employed borrowers or offer specific loan products tailored to their needs.

  5. Impact on Credit Score. Understand how taking a loan may impact your credit score and ensure you can manage the loan responsibly to maintain or improve your credit standing.

How to repay a personal loan for self-employed?

  1. Understand the Loan Terms. Familiarize yourself with the interest rate, repayment period, and any associated fees.

  2. Budget Wisely. Allocate a portion of your income towards loan repayment while considering income fluctuations.

  3. Make Timely Payments. Ensure you make your loan payments on time to avoid late fees and maintain a positive credit history.

  4. Prioritize Loan Repayment. Make repaying the personal loan a financial priority over non-essential expenses.

  5. Minimize Additional Debt. Avoid accumulating new debt while repaying the loan to maintain a manageable financial situation.

  6. Communicate with the Lender. If you face financial difficulties or anticipate challenges, discuss potential solutions or alternative payment arrangements.

Alternatives

  1. Small Business Loans. Instead of applying for a personal loan, self-employed individuals can explore small business loans, which offer higher loan amounts and more favorable terms for established businesses.

  2. Business Lines of Credit. A business line of credit provides a revolving credit facility, allowing self-employed individuals to access funds as needed.

  3. Equipment Financing. For self-employed businesses requiring specialized equipment or machinery, equipment financing can be a suitable option with the equipment serving as collateral.

  4. Business Credit Cards. Business credit cards offer a revolving credit line and benefits tailored to business needs, helping self-employed individuals manage expenses.

  5. Peer-to-Peer Lending. Peer-to-peer lending platforms connect borrowers with individual lenders, offering more flexible lending criteria.

  6. Home Equity Loans or Lines of Credit. Self-employed homeowners can leverage their home equity through loans or lines of credit for potentially larger loan amounts

Editorial opinion

Loans specifically designed for self-employed individuals play a vital role in supporting their entrepreneurial pursuits. These loans provide the capital for business growth, managing expenses, and consolidating debt. They address self-employed individuals' unique financial challenges and offer fair and reasonable options. Accessible loans for the self-employed recognize unconventional financial documentation and fluctuating income streams. Lenders specializing in serving self-employed individuals consider factors beyond traditional employment records, ensuring fair assessment and approval based on bank statements, tax returns, and business financial statements with consistent income only. Self-employed borrowers require loans that can adapt to their evolving needs. Flexible repayment terms, variable loan amounts, and customizable structures enable borrowers to align their loans with specific requirements, providing financial support without unnecessary constraints. Moreover, these loans foster entrepreneurship, job creation, and industry advancement. They unlock the potential of individuals who may not fit traditional employment models but possess the talent and drive to impact their fields significantly.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Lender

  1. Make sure to confirm whether the lender is licensed to operate in your state. You can verify this information with your state regulator or attorney general.
  2. Check if the lender is a member of a reputable association, such as the Community Financial Services Association of America. Membership in such organizations may provide an extra level of reliability.
  3. Carefully review all the terms and conditions of your loan contract.
  4. Thoroughly examine the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the loan.
  5. Take advantage of your right of rescission. Usually, you can rescind the loan within three days after signing the agreement. Alternatively, there is typically a "cooling-off" period, which allows you several days to thoroughly review the contract before making an informed decision to enter into a consumer loan agreement based on the terms specified by the lender.
  6. Choosing a lender is a significant decision that demands careful consideration and a good understanding of how such organizations operate.

Methodology

At Finanso, we've carried out a comprehensive analysis of over 100 lenders, assessing them based on 35 different parameters across six key categories: accessibility of loans, customer relations, quality of service, interest rates, and transparency of conditions.

In each category, we carefully considered the most critical factors in selecting a lender. These factors include the interest rates, available loan amounts, minimum credit score, minimum income, application fees, and the speed at which funds are transferred.

At Finanso, we highly value our users, which is why we also focus on the quality of customer service, user reviews, and additional features that can aid our users in making a well-informed decision.

Our ultimate goal is to provide insightful recommendations and expert advice to assist you in selecting a lender that best caters to your specific needs.

Additional resources

To learn more about personal loans for self-employed and best practices, check out some of the following resources:

Sources

FAQ

Is it harder to get a personal loan if you are self-employed?

Securing a personal loan can be more challenging for self-employed individuals due to their irregular income. Lenders perceive them as higher risk. However, self-employed workers can still qualify by providing proper documentation, meeting requirements, and demonstrating income stability. Working with lenders specializing in self-employed individuals or exploring alternative financing options can be beneficial. Seeking guidance from financial advisors can help you navigate the loan application process successfully.

Can I get a personal loan without proof of income?

It is typically difficult to get a personal loan without proof of income. Lenders require income verification to assess your ability to repay the loan. However, some lenders may offer alternative options for self-employed individuals or those with non-traditional income sources. These options might require additional documentation or have stricter eligibility criteria. It's recommended to explore various lenders and discuss your specific situation to determine if any options are available for obtaining a personal loan without traditional proof of income.

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

Yes, self-employed individuals can get a cash advance, depending on the lender's policies and requirements. Cash advances are short-term loans that provide borrowers with immediate access to cash. They are typically based on future income or business receivables. Self-employed individuals can use cash advances to cover immediate expenses or address cash flow gaps. However, it's important to note that cash advances often come with high-interest rates and fees, so careful consideration should be given to the terms and affordability before opting for this type of financing. Exploring other alternatives and comparing offers from different lenders is advisable to make an informed decision.

Do you have to prove what you use a personal loan for?

No, you do not typically have to prove what you use a personal loan for. Once the loan is approved and disbursed, you can use the funds for various purposes, whether for debt consolidation, home improvements, education expenses, or other personal finance needs. The lender's primary concern is your ability to repay the loan according to the agreed terms.

Will banks give loans to the self-employed?

Yes, banks do provide loans to self-employed individuals. However, a self-employed borrower may need additional documentation to demonstrate their income stability and repayment capacity. Lenders typically evaluate factors such as credit history, income level, and business documentation when considering loan applications from self-employed individuals. Working with banks that have specific loan products for self-employed individuals or seeking alternative financing options can increase the chances of obtaining a loan as a self-employed individual.