If you’re working for yourself, money can get tight, especially when you’re trying to grow your business. Business loans for self-employed people can provide the capital necessary to cover short-term and long-term business goals. It can be used for other business-related needs, such as working capital costs and investments in marketing, equipment, or other products and services that can help with expansion.
You also don’t need to incorporate a business or set up an LLC to get funding. “Can I get a business loan as the sole owner?” The answer is overwhelming yes. In 2024 alone, SMEs managers supported more than 3,000 loans for only props, exceeding $630 million.
Getting a self-employed business loan becomes easy if you know what it involves and where to look. We are here to help with that exactly. Here are the steps to get a business loan as a self-employed individual:
Prove stable revenue
Your level of revenue plays a role in being approved and how much. Most lenders are looking for at least $100,000 in annual revenue, while some lenders are less. Banks tend to want to see higher revenues (over $150,000), but online lenders generally have lower requirements.
The more revenue you make, the more likely your lender will feel that you can pay back what you borrow. The key here is not only generating revenue, but also tracking it. Make sure you have a reliable way to monitor paid invoices, credit card sales, or other revenue channels.
As your business matures, your tax statement can be a big help here. Your tax return includes your total and net income, and handing them over to lenders can verify your self-employed business loan candidates. Even if you filed your business revenue under your personal tax, it is true (i.e. if you are operating as the sole owner).
Go with a friendly self-employed lender
A simple internet search should point towards financial institutions willing to offer self-employed business loans. The PNC, the Fiber Federal Credit Union, and the Discovery have dedicated landing pages aimed at helping people who work for themselves find fundraising, for example.
If you are struggling to get a self-employed business loan, look for a lender supported by the SBA. SBA loans are guaranteed by the federal government, so lenders can help you recoup some of your losses if you don’t pay back what you borrow. This makes lenders more open to underwriting loans that they may consider somewhat risky, such as business loans for self-employed people.
Provide collateral
Lenders are more likely to view loan applications protected by collateral, as they are guaranteed to be able to pay off the loan by supporting the assets.
Here are some things you can tolerate for your business loans and collateral:
- Company real estate like your office location
- Business Equipment
- Company vehicle
- Personal assets such as your home or investment
- stock
In some cases, you can pledge future proceeds as collateral for your loan. For example, invoice factoring allows lenders to move forward with the percentage of outstanding invoices they collect. (However, it is recommended that invoice factoring usually comes with a term that is unfavorable compared to other small business loans.)
Collect the required documents
As a freelancer or self-employed business owner, you don’t have the same documentation as an employer-based business. It is usually necessary to show that you will earn money from self-employed.
- Personal bank statement
- Business Bank Statements are separate
- Tax returns (either your business tax returns or your personal returns that include Schedule C or SE, depending on how you submit)
- 1099 Form
- Business financial statements such as balance sheets and reports from accounting software
- If applicable, the LLC formation or establishment document
Choose the right loan that suits your needs
Freelancers and self-employed business owners can get most of the same business loans as other businesses. You can choose the type of loan that best suits your fundraising purpose.
Compare offers and make sure you’re doing a fair deal
There are so many different ways to get a business loan for self-employed people, so finding out which type of funding is already a lot of work. However, don’t stop there. To ensure that interest or fees are not overpaid, follow a few more steps.
Specifically, it applies to at least three lenders. This allows you to compare prices and terms and reveal which self-employed business loans are the most advantageous for you and your company.
Looking at the loans, compare the annual rate (APR). These represent the amounts you pay each year to maintain your loan, including interest as well as repetitive fees. Looking at the APR for each loan, you can compare apples to apples. ‘
Next, compare that APR with the average rate of the type of business loan you are getting. Especially if the company is new, it is a bit dangerous for a small and medium-sized enterprise, so it is normal for the rate to be slightly higher.
Conclusion
If you are a self-employed person, your main challenge is increasing your revenue to serve more customers. Often, it means having less capital than other businesses. Getting a business loan will give you the boost you need as long as you meet the lender’s requirements.
Fortunately, these requirements will vary depending on the lender and the type of funding you are getting. By exploring options, you can easily find the right business loan for self-employed people in certain circumstances.
