Business Loans for Self Employed People: A Complete Guide

Getting a self-employed business loan can be tricky, but it doesn’t have to be impossible. Find out what business loans you could get when self-employed, how you can prove your income, and what you can use the funds for with our detailed guide.

Nic Redfern, Connor Campbell Last updated on 01 July 2022.
Business Loans for Self Employed People: A Complete Guide

Being self-employed means you’re the boss. And sometimes part of being the boss is seeking help to level up your business, reach your goals, or cover cash flow issues. Business loans can provide the assistance you need to do all of that and more.

Below, we take a look at everything you need to know about getting a business loan when self-employed.

Can I get a business loan if I am self-employed?

Whether you are a sole trader, in a partnership, or run a limited company, there aren’t specific business loans for self-employed people that are any different from the forms of lending available to most businesses. You may also find it is more difficult to get a loan when self-employed, as you might have a harder time proving you can make the repayments.

This doesn’t mean, however, that you can’t get a business loan if you are self-employed. You would need to provide the lender with the evidence required to show you can afford the loan and will be able to make the repayments in a timely and consistent manner.

Can I get a self-employed business loan with bad credit?

Like for any other type of business, there are loans available for self-employed people with bad credit. You may, however, have a smaller choice of lenders, and could end up with a higher interest rate to compensate for the perceived higher risk of lending to you.

That is why it might be a good idea to try to improve your personal and business credit scores before applying for a loan.

» MORE: 15 ways to improve your credit score

Types of business loans for the self-employed

Self-employed business loans can be broken down into two main types: unsecured and secured. It is important to thoroughly compare each option and make sure the one you pick suits your business and your needs, before you start your application.

Secured business loans: These types of loans require you to put up an asset, such as a property or piece of machinery, as a security against the amount you borrow. You may find it easier to get a secured loan over an unsecured loan, and might be offered a more competitive interest rate. This is because providing an asset, which can be lost if you fail to meet your repayments, makes lending to you less risky for the provider.

Unsecured business loans: These types of loans do not require you to put up an asset as security. Instead, lenders may put more focus on your trading history and credit score, while you could be asked to provide a personal guarantee. Applying for an unsecured loan is typically quicker than for a secured loan, as you don’t have to go through the asset-valuation process. However, due to the added risk of borrowing without an asset as security, the interest rates you could be offered may be higher.

Other types of business finance for self-employed people

There are other forms of business finance you can access if you are self-employed that fall outside traditional secured and unsecured business loans. These include:

  • Personal loans: It is possible to use a personal loan for business purposes, although you would need to check your lender’s terms and conditions before applying.
  • Invoice finance: This sees you borrow money against the sum of your pending customer invoices.
  • Asset finance: This is where you either borrow money against your balance sheet assets, or enter a hire-purchase or equipment leasing agreement to access machinery essential to your business.
  • Merchant cash advances: With this form of lending, you borrow a lump sum and then repay it through a pre-agreed percentage of your future customer debit and credit card payments.

» MORE: 17 different sources of business finance

What can I use a self-employed business loan for?

There is no one reason why you might get a business loan when self-employed. Here are just a few of the things you can do with your loan:

  • getting your business off the ground
  • exploring a new product or service
  • expanding into a new market
  • hiring more staff
  • covering the costs of seasonal trading
  • dealing with a cash flow problem
  • purchasing equipment

» MORE: Why do businesses need finance?

How much can you borrow with a self-employed business loan?

The amount you could borrow with your self-employed business loan will depend on the lender, your credit history, and whether you choose an unsecured or secured loan.

In general, borrowing starts from as little as £1,000 and can reach as much as £500,000.

How to apply for a business loan if you are self-employed

The exact application process for your self-employed business loan will depend on the lender you have chosen. In general, you will need to supply your lender with all the evidence it needs to prove you can repay the loan, while also passing any credit checks it requires.

Am I eligible for a self-employed business loan?

While each lender will have its own specific eligibility requirements, you will likely need to:

  • be over the age of 18
  • be registered with HM Revenue & Customs (HMRC)
  • meet the lender’s minimum trading history requirements
  • meet the lender’s specified minimum monthly turnover

What documents will I need to get a loan if I am self-employed?

You will likely need to supply the following documentation when applying for a self-employed business loan:

  • SA302 (tax return), which you can download from your HMRC online account.
  • Bank statements to corroborate the earnings demonstrated by your SA302 calculation.
  • Company information, such as your status (limited company, partnership, sole trader etc.) and details of any individuals with a financial interest in the business.
  • Details of any dividend payments and shareholdings.
  • If your income comes from property, you might need to provide proof of rental income by way of bank statements, mortgage documents and statements and potentially a lease or tenancy agreement.
  • Evidence of addresses dating back three years, usually in the form of bank statements or bills for utilities or tax.
  • Proof of ID, such as passport or driving licence.
  • A business plan or cash flow forecast.

» MORE: How to write a business plan

How do I show proof of income if I am self-employed?

The easiest way to show your proof of income if you are self-employed is by submitting your self-assessment tax calculations, and then downloading your SA302 from your HMRC online account. Your SA302 will show evidence of your earnings from the last four years. You may also need to provide a tax year overview alongside your SA302.

Another way you can prove your income is by providing your bank account statements for the period of time requested by the lender. This can be useful if how you receive your income varies.

» MORE: Learn how to file your taxes

How to choose a self-employed business loan

When looking for a self-employed business loan, it is a good idea to compare the offerings of a range of lenders to make sure you find the right fit for your situation. You should pay attention to:

  • how much you can borrow
  • any minimum turnover requirements the lender might have
  • the interest rates attached to the loan
  • the size of your monthly repayments
  • how long you will have to repay the loan

» COMPARE: Business loans

About the authors:

Finance Director at NerdWallet UK and business adviser to SME's Nic is spokesperson for small and growing businesses with a strong understanding of the financial needs of business Read more

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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