Self-employment gives you the opportunity to decide the course of your business and run the business on your own schedule. However, getting a secured loan can be tough for the self-employed. This predicament is more evident when you do not have a proof of income or verifiable tax returns. The other challenges faced by the self-employed include lack of long running financial statements and inadequate credit history. All the fore-mentioned shortcomings make the business owner in this employment bracket appear risky in the eyes of lenders.
Tips to help you get loans for the self employed
With a little bit of work and patience, a self-employed person can still access credit with favorable terms of repayment. According to Credibly, the following 4 tips can help you get very attractive self employed loans:
- Find ways to improve your credit score
Lenders often look at the credit scores to gauge the applicant’s creditworthiness. If you want to get approved for a personal loan or business loan, you need to keep your individual and business credit score as high as possible. Although it may take several months to make a positive dent in your credit score, the push is worth all the effort. If there are any underlying errors or discrepancies in the reporting, get the issues sorted out with the relevant agencies to maintain good credit. High scores will make it easy for you to obtain low interest, personal and business loans.2. Do not apply for self employed loan soon after starting a business
Statistics show up to 40% of small businesses fail within the first two years operation. For this same reason, you should avoid burdening new business with loans as this could jeopardize its survival and growth prospects. Established lenders may also not be very keen to support nascent, small business unless you are able to provide a string of financial records showing proof of success.3. Pay off your past accumulated debt
Before applying for a business loan, ensure the previous debts are cleared off. This is important because lenders may use your financial history to deny you a new line of credit. If you are unable to clear the old debts, try as much as possible to minimize them in order to ease the debt burden. The best approach is to sort your finances several months earlier before applying for a loan.
4. Build cash reserves and use your savings to make large down payments
If you have a small, new business, you are strongly advised to build sufficient cash reserves. The reserves can help you cover immediate and future financial commitments and show the lender you have adequate security to cover any new business or personal loan. Part of the savings can also be used to make a large down payment on your next big purchase.
Choose your lending partner wisely
Banks often look at a number of things before approving a loan. The areas of focus include income documentation, debt to income ratio, current balances and credit scores. Self-employed business owners with lower taxable income and inconsistencies in income now have several credit options to choose. This is precisely because lenders have come up with an array of financing facilities to cater for all niche markets. The facilities targeted at the self-employed include: private lending, hard money loans and co-signer backed loans. The Florida based Associates Home Loan is one such player. The mortgage provider offers flexible self employed loans and other financial offerings.