Ever since the financial crisis, banks and lenders have become more stringent about whom they lend to. This has made more difficult for those who are self-employed to get loans as their income can fluctuate month to month.
The simple answer is yes. While your options may be limited, there are still several options for self-employed people to get a loan if they have a good credit history, can satisfy the lender's requirements for affordability and provide the documents to support it.
Personal loans: You can apply for this type of loan without needing to secure the amount you're borrowing to any assets you own. You will need a good credit record if you want a self employed personal loan.
Secured loans: If you don't have the employment history or documented income to get an unsecured personal loan, you may want to consider a secured loan. This is a type of personal loan that uses the equity you have in your house as security against the cost of the loan, and generally offers lower rates than regular personal loans. If you're self-employed and work from a home that you own, a secured loan may be a better option than trying to get approved for unsecured finance.
Guarantor loans: If you're finding it difficult to get a loan, another option is to apply for a guarantor loan. This when you get a third party, such as a friend or family member with a good credit record, to act as a guarantor for the loan. This means that if you miss any repayments or are unable to repay the loan, it falls on the guarantor to repay the loan. This might make it more likely for you to be approved for a loan, but be aware that interest rates on guarantor loans tend to be higher than standard personal loans.
Business loans: You can apply for this type of loan if you need the funds to support your business. The lender will check your business accounts to help them decide whether to lend to you.
Applying for loans for self employed people is just like applying for any loan. Here are the steps you can follow to
Gather your financial documents: As someone who is self employed, it's vital to have all your financial documents concerning your income at hand. These will be necessary for lenders to assess your eligibility for a loan.
Check your eligibility: Most lenders now offer you the facility to check your eligibility for a loan, without affecting our credit score. This lets how find out the loans you are eligible for save you from applying for a loan you wouldn't be approved for.
Compare loans: It's always important to compare loans from different lenders to find the best deal that suits your needs and your affordability.
While different lenders may have their own document requirements, some of the documents most lenders require can include:
Proof of ID: This can be your driver's licence or passport
Proof of address: Copies of council tax or utility bills are usually acceptable.
Tax returns (SA302): Being self-employed, you are required to self file, so once you've submitted your tax returns, you can simply log into your HMRC online account and download your SA302 calculation. You should be able to produce copies of your SA302 calculation for at least the last two years to help prove the income that you declare as part of your application.
Bank statements: These are likely to be requested so that the lender can corroborate the earnings shown in your SA302 calculation, and get a picture of your overall financial position (regular income and pattern of outgoings).
Proof of any rental income: This should be declared and evidence provided, again through your bank statements or mortgage documents and statements, and you may need to produce any lease/tenancy agreements.
Company/business information: This can include the status of the business (sole trader, partnership, limited company, etc), and details of anyone other than yourself with a financial interest in the business.
If you have a good credit record and can satisfy all of the lender's affordability requirements, with documentary evidence, there's no reason why wouldn't be offered the same rates as a standard personal loan.
It's not impossible to get a personal loan for self-employed people even if you have bad credit, but you'll find that fewer lenders will be willing to lend to you. If you are approved for a loan, it may be for a lesser amount than you need, and at a higher interest rate than a standard personal loan.
Personal use: If you want to use a personal loan for business use, you may find that some lenders specify that you can't borrow money for business purposes.
You will be asked what the loan is for as part of your application. Be honest so the lender can tell you if you can use the money for its intended purpose.
Business use: If you want to use a business loan for personal use, you may need to secure what you borrow to your business, e.g. a work vehicle.
Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.