Last updated: 22/10/2020 | Estimated Reading Time: 6 minutes
Loans for Self-Employed People
Self-employed people often find it difficult to get a loan. The financial crisis back in 2008 led to lenders and banks being more strict about who they loan money to. The more stringent measures taken by lenders hit the self-employed the worst, as their income can vary from month to month - making them a higher risk in the eyes of the banks. Despite this, there are still many options available if you’re self-employed and looking for a loan. This guide will explain everything you need to know.
In This Guide:
- Are there any loans for self-employed people available?
- What kind of self-employed loans can I apply for?
- How do I apply for a loan if I’m self employed?
- What documents will I need in order to apply for a self-employed loan?
- Will it cost me more to get a loan because I’m self-employed?
- What if I have bad credit?
- What can I use the money from the loan for?
Are there any loans for self-employed people available?
Simply put: yes. There are still many loan options available to self-employed people, although they are somewhat limited. You’ll need to satisfy the lender’s affordability criteria, have a good credit history, and be able to provide documents to prove that you’re capable of taking on the debt.
What kind of self-employed loans can I apply for?
There are various types of loan that you can opt for if you are self-employed. These include:
You’ll need a decent credit record to apply for this type of loan, but you won’t need to secure the amount you borrow to any assets you own.
You may want to consider a secured loan if you lack the documented income or employment history to get accepted for a personal loan. Secured loans utilise the equity in your home as a form of security. These loans also tend to offer lower rates than personal loans. Secured loans are a better option for people who are self-employed and find it hard to get approved for an unsecured loan.
A guarantor loan involves getting a ‘guarantor’ in the form of a family member or friend with a good credit record. This person will be liable for repaying the loan in the event that you miss any repayments or are otherwise unable to repay the loan. Interest rates on guarantor loans are generally higher than those on personal loans, but it is slightly easier to get approved for a guarantor loan.
If you need funds to help finance your business, then you can opt for a business loan. The lender will carry out an assessment of your business accounts to help judge whether you’d be a good candidate for a loan.
How do I apply for a loan if I’m self employed?
If you’re self-employed, the loan application process is no different than applying for any other kind of loan. The general steps you’d need to follow are:
- Sort out your financial records: It’s essential that you have your financial documents and information regarding your income all in order. You’ll need everything at hand in order for a lender to assess whether you are eligible for a loan.
- Check whether you are eligible: These days many lenders will allow you to check if you’re eligible for a loan without it having an effect on your credit score. This is handy, as you can save yourself from wasting time applying for loans that you’d have very little chance of being approved for.
- Compare loans: It’s essential that you shop around and find the best loan that suits your requirements. There are many loans available on the market, and opting for the wrong one could give you a major headache down the line. That’s why using a loan comparison tool, such as ours, is a vital step before you get applying. It’s quick, easy, and could save you hundreds of pounds!
What documents will I need in order to apply for a self-employed loan?
The exact documentation you’ll need will vary from lender to lender, but most lenders require the following:
- Proof of ID: Your passport or driving licence.
- Proof of your address: Usually a copy of your utility bill or council tax will be accepted.
- Your tax returns (SA302:. As you’re self-employed you’ll be self-filing your tax returns. You’ll need to log into your HMRC account, and download your SA302 calculation. At least two years worth of SA302 calculations will be required in order to prove your income.
- Bank statements: Your lender will require your bank statements in order to get a bigger picture of your financial situation, including your monthly outgoings, and to confirm the earnings declared in your SA302.
- Proof of rental income: If you have any income in the form of rent, you’ll need to declare it and provide evidence via bank statements or mortgage documents.You may also be required to provide any lease or tenancy agreements.
- Company or business information: You will need to declare the status of your business, as well as the details of anyone with financial interest in your business other than yourself.
Will it cost me more to get a loan because I’m self-employed?
There’s no reason why you’d be charged higher rates due to being self-employed, as long as you can satisfy the lender’s suitability requirements, and you have a good credit record.
What if I have bad credit?
It’s definitely not impossible to get a loan if you’ve got bad credit and you’re self-employed, but you’ll have a much smaller range of options as fewer lenders will be willing to take you on as a customer. If you do get accepted for a loan, you may find that it’s at a higher interest rate, or you aren’t offered the full amount that you had asked for.
What can I use the money from the loan for?
You can find self-employed loans on the market for both personal and business purposes, but you need to be aware of any restrictions that apply to your loan. You may find that a particular lender won’t allow you to use the funds from a personal loan for business purposes.
As part of your loan application you will be asked what you intend to use the money for, so it’s best to be honest with the lender so they can notify you if your intended use for the funds isn’t permitted.
If you’re taking out a business loan but want the funds for personal use you may be required to secure the loan amount to your business, for example, a vehicle you use for work.