Are you one of the 16 million Americans who are self-employed?
If yes, you’re certainly enjoying the perks of being your own boss. There’s no constant worry of getting suspend or fired for showing up at work late. You’re the ruler of your own economic world.
However, self-employment has its fair share of downsides. If you fall into financial trouble, for instance, getting a loan from a bank can be a big challenge. Your application will be rejected outright or you’ll get higher interest rates.
So, are there loans for self-employed people? Yes.
Continue reading for a guide on how to get approved.
Know the Type of Loans Available to Self-Employed People
The first step to getting a loan when you’re self-employed is to research the lending market and establish the kind of loans that are available to people like you.
Lenders offer different types of credit products, but they broadly fall under two categories: secured loans and unsecured loans.
Secured loans require collateral and typically have lower interest rates. Unsecured loans don’t require collateral and have higher interest rates and stricter qualification requirements.
Secured loans are available to anyone, as long as they have the collateral. As such, if you own a car or real property, you can go in for a secured loan.
You can also get an unsecured loan, provided that you have a verifiable income and good credit.
Provide Proof of Income
When you have a formal job, getting proof of income is easy. Just ask your employer to give you your paystubs. But when you’re self-employed, no one is responsible for paying and tracking your wages.
The good news? You can create your own paystubs using online tools like PayStubs.net.
These tools are easy to use. You just need to enter details of your income and the tool will generate your stub.
You’re probably asking, “How will lenders verify that the information on these stubs is accurate?”
Good question!
First, paystubs alone aren’t sufficient proof of income. In most instances, you’ll need to accompany them with personal bank account statements that show you’re making the kind of money you’ve stated on your paystubs.
Second, lenders might ask you to ensure the paystubs are certified. This means you’ll hire a certified public accountant to review the stubs alongside your financial statements. If accurate, the CPA will certify your stubs.
There are other ways to provide proof of income. For example, your tax returns offer a picture of your finances in the past year or so.
Maintain Good or Excellent Credit
Your credit score is an important tool for any credit-active consumer, but it’s even more important when you’re self-employed.
A good credit score tells lenders you’re a financially responsible person. You pay your bills on time and haven’t defaulted on any loans. You, therefore, have greater chances of getting a loan.
It’s Possible to Secure Loans for Self-Employed
For most people, loans are part of life. They offer an easy and convenient way to not only get out of a financial bind but also purchase big-ticket items such as cars and homes.
However, unlike traditionally-employed people, the self-employed encounter bigger challenges when dealing with lenders. But with this guide on loans for self-employed people, you now know the steps you need to take to get approved.
Stay tuned to our blog for more personal finance tips and hacks.