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How to Secure a Self-Employed Loan for Your Business
November 23, 2021
Our Guide to Self-Employed Business Loans

How to Secure a Self-Employed Loan for Your Business

With the rise of the gig economy, self-employment is an increasingly popular option. From freelance software consultants and tutors to caterers and mechanics, self-employed business owners exist in all industries.

Like any other business owner, this new breed of entrepreneur can benefit greatly from self-employed loans. Having access to additional financing enables these entrepreneurs to afford regular business expenses while also scaling their operations.

However, self-employed business loans aren’t necessarily easy to qualify for, especially because traditional lenders, such as banks, are still grappling with how to best finance self employed borrowers.

To help you navigate your self-employed loan options, we’ll review how to apply and receive a small business loan. To wrap up, we’ll also highlight the many ways having a business loan as a self-employed person can be useful.

3 Self-Employed Loan Qualifications to Prepare For

Before you start the application process for a self-employed business loan amount, you should take the following steps:

1. Request and Review a Copy of Your Credit Report

As a sole proprietor, your personal credit score may be the biggest factor in determining whether you’re approved for a loan or not. Also, many business loan lenders have minimum credit score requirements for their loans.

For both these reasons, it’s smart to get a copy of your credit report from all three credit bureaus before applying for a loan or line of credit. That way, you know which loans you have a reasonable chance of qualifying for. Additionally, you can review your report for errors that you can fix to improve your score.

If you have a low credit score but still qualify, you should be aware that your loan offer might not be as attractive as it would be if you had strong credit. In many cases, you may receive an offer with high interest rates, low loan amounts, or strict terms. Due to this, you may benefit from improving your credit score prior to submitting an application.

2. Decide On How You’ll Use the Loan

Without knowing how you plan to use your self-employed loan, you can’t narrow your financing options down at all. That’s why you should take time to determine how you’ll spend a small business loan.

In addition, your business lender will ask you about how you plan to use your loan, so you’ll want to be prepared to answer.

Moreover, as a self-employed entrepreneur it’s important to limit your risk exposure. By only applying for the amount of money you need—and can afford to pay off—you limit the risk to your financial health.
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3. Prepare Your Paperwork

Different business loan lenders will require different kinds of paperwork. As a best practice, before applying for loans, you should prepare and organize your:

  • Business plan
  • Personal and business tax returns
  • Personal and business bank statements
  • Income statements and balance sheet
  • Business license

Keep in mind that you may be asked for other documentation in addition to what’s listed above. This is just a list of the most commonly required documents when applying for a self-employed loan.

How to Apply for a Self-Employed Business Loan

Once you’ve completed the three steps outlined above, you’re ready to start applying for a small business loan. Here’s what you need to do next:

1. Research and Compare Self-Employed Business Lenders

Look for business lenders that offer self-employed business loans. These lenders will typically be more amenable to self-employed entrepreneurs. Once you have a list of options, check their loan requirements to ensure you can qualify. Then before you decide where to apply, research each lender’s ranking on Better Business Bureau (BBB) to find your top options.

2. Choose Your Lender and Complete Their Application Form

Once you’ve shortlisted your self-employed business loan options, select your top lender and complete their application form. Most forms will be available online though some lenders may require in-person applications. In either case, double-check that all the information you provide is correct to avoid any delays.

3. Read the Offer Closely

If you’re approved, make sure you read your lender’s offer closely. Pay close attention to the fine print on your loan agreement. If you have any questions, don’t hesitate to ask the lender before signing.

Maximizing Your Self-Employed Business Loan Proceeds

Once you’ve received a self-employed business loan, you’ll want to make sure you maximize your return on the proceeds. When you use your newly received working capital strategically, you can accomplish incredible growth.

Here are a few options we recommend focusing your spending on:

  1. Sales and marketing expenses such as new hires, paid advertising, or branding updates.
  2. Equipment upgrades and maintenance.
  3. Monthly payments on other debts such as credit card bills, taxes, mortgage payments, and insurance.
  4. Expansion to new locations or renovating existing locations.
  5. Technology investments such as automation software, communication tools, or a mobile app.
  6. Purchase inventory ahead of time for high-volume sale seasons.
  7. Focus on growing your business’s savings account, and save money for future projects or slow seasons.

If how you plan to use the loan isn’t included on this list, don’t be concerned; exactly what you should spend your loan on depends on too many factors for anyone to provide a complete list of the possibilities.

Conclusion: Building on Your Self-Employment Journey

When you decide to be self-employed rather than work a typical 9-5 office job, it’s on you to finance your growth and development. Of course, few entrepreneurs have easy access to funds that are sufficient to pay for that growth and development.

In a nutshell, this is what makes self-employed loan options so valuable to entrepreneurs. Like a personal loan, business loans provide the financial resources necessary to embark on a new stage of your self-employment journey. Still, taking on debt comes with risk and as a self-employed person, you have to bear that risk.

So, take your time, do your research, and be patient until you find the self-employed business loan option that works for you.

Editor’s Note: This post was updated for accuracy and comprehensiveness in November 2021.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].