If you’re self-employed, you’re probably used to jumping through a few extra hoops when it comes to finances. Applying for a loan is no different.
For personal loans, self-employed workers have access to the same lending options as everyone else — though you’ll probably have to provide some extra documentation to prove to a lender that your income is reliable.
And on the business side, companies of all sizes — including sole proprietors and freelancers — can apply for business credit cards and other financing to help them grow.
Whatever type of financing you’re seeking, keeping business and personal finances separate is key to a smooth process. You’ll need to provide a lender with detailed information about your business’s revenue and expenses. If you don’t have a business bank account, consider opening one to make bookkeeping easier.
If you’re self-employed and seeking to cover a personal expense or grow your business, here are some borrowing options.
Personal loans for self-employed workers
Lenders almost always ask personal loan applicants to provide proof of their income. If a borrower earns a salary and receives a W-2 from their employer each year, that’s pretty straightforward: They just need to submit copies of their tax returns and W-2s.
But when borrowers are self-employed, they may need a lot more documentation. Lenders want to see a history of steady, predictable income, and business owners aren’t always able to give themselves a steady paycheck.
Self-employed borrowers typically need to provide lenders with several years of tax returns and 1099s. They may also need profit and loss statements and several months of bank statements.
If you’re struggling to qualify for a loan on your own, adding a co-signer could help. The co-signer adds their name and signature to the loan, assuring the bank that if you aren’t able to repay the loan, they will. This can help you build credit while borrowing the funds you need. The co-signer doesn't have access to loan funds.
If you need to borrow a small amount of money and have good or excellent credit (a FICO score of 690 or higher), a credit card may be a better fit than a loan. A credit card allows you to borrow small amounts of money, up to a predetermined limit, and pay it back over time. If you pay the balance in full every month, you won’t be charged interest on what you borrowed.
If you have poor or fair credit (a FICO score of 300 to 689), you can still qualify for some personal credit cards — particularly secured credit cards, where you put down a security deposit that the issuer can keep if you are unable to pay the bill.
Like a co-signed loan, responsible use of a credit card can help increase your credit score, giving you more options in the future.
Some nonprofits give cash assistance or loans to help people in emergency financial situations. Credit unions may offer payday alternative loans. And some online lenders have loans specifically designed for people with low credit scores.
Small-business loans for self-employed workers
Accessing credit is a key part of growing a small business. Credit cards, lines of credit and business loans can help self-employed workers navigate cash flow issues and make investments to help their businesses expand.
Generally, if they qualify, self-employed workers can access all of these types of products to pay for business expenses.
Business credit cards
A business credit card is a simple way to unlock a small amount of financing right away. It can help you establish a business credit history to qualify for larger loans in the future. And having a business credit card makes it easier to keep personal and business finances separate.
Credit limits, interest rates and annual fees on business credit cards can vary depending on each applicant's credit history. Like personal credit cards, some business credit cards offer rewards like cash back, 0% APR introductory periods or travel points and miles.
All kinds of businesses can apply for small business credit cards, including sole proprietorships without a formal business structure.
To apply, you’ll need information about your personal finances since you may have to personally guarantee the debt. Be prepared to provide the details about your business, too, including the legal structure, estimated monthly spending and employer identification number.
Business lines of credit
Like a credit card, a line of credit allows a business owner to borrow money as needed and pay off purchases over time. You can use a line of credit to smooth out seasonal cash flow challenges or to invest in purchases that will help grow your business, then pay it back over time. Lenders charge interest on what is borrowed only.
Typically, lines of credit offer higher limits than credit cards. They’re harder to qualify for, though — you’ll probably need several years of established business history.
SBA microloans are small loans issued by nonprofit community-based lenders and guaranteed by the Small Business Administration. The program is designed to serve business owners who may struggle to qualify for traditional business loans, so microloans are usually easier to qualify for than term loans or lines of credit.
SBA lenders can finance microloans of up to $50,000, though the average is around $13,000. These funds can be used to buy inventory, supplies, machinery, or equipment; to furnish space or for working capital, but can’t be used to pay debt or buy property. Interest rates range from 8% to 13% and repayment terms can stretch to six years.
If you need to borrow a set amount of money to fund business expenses, you may have considered applying for a small-business loan. To qualify, you will probably need to have been in business for several years and have good or excellent personal credit.
Still, lenders may require you to provide a personal guarantee. If your business goes under, you could be personally liable for the debt. Other lenders ask borrowers to provide assets like real estate as collateral or take liens on business assets so they can seize them if the debt goes unpaid.