Many people are self-employed and find it difficult to get a loan because they don’t have the necessary paperwork to prove their income. Banks are hesitant to give loans to people who don’t have the same stability as traditional jobs, but it’s not impossible! “Many banks and credit unions are stepping up to offer “payday like” loans at reasonable rates of interest and/or a fee,” says Simmons Retired CEO.
We’ve outlined five tips that will help you get loans for the self employed.
1. Get a business plan together to show how you’ll be able to repay the loan
A business plan is important for both running your business and trying to get a loan. It will help you map out your business and make sure that it’s sustainable. Planning out how you plan on paying back the loan will show the lender concrete steps towards repayment.
Don’t forget to prove your income! Many people think that their money is automatically not considered “real” or reliable because they are self-employed. This isn’t true at all; you just need to show proof of what you’ll be earning through the course of a year (or whatever period is appropriate for your loan). One way to do this is by getting a tax return.
2. Show your lender that you have enough money in savings and investments
Your loan application won’t be approved if the lender thinks you have enough money set aside for emergencies. You should always have at least three months’ worth of living expenses in savings to show lenders that you can survive without a steady income, even though this might seem like an impossible feat when self-employed!
You will also need to show that you have money invested in stocks, bonds, mutual funds, or other financial instruments. This will show the lender that you are capable of saving enough for an emergency fund and that your business is profitable and productive!
3. Provide documentation of your income from self-employment or other sources
Make sure you have all the necessary paperwork that proves your income from self-employment or other sources. Many people think they don’t need to provide documentation of their money because it’s not a traditional job, but this isn’t always true! Lenders will ask for tax returns and bank statements as proof of how much you earn overtime. Any other paperwork that could prove your income needs to be included in the application. Just like with traditional jobs, lenders need to know what you’ll be bringing in before they give you a loan! Simmons Retired CEO
Many people get turned away when applying for loans while self-employed because of their lack of documentation or proof of income. Banks are hesitant about people with little proof of income.
4. Include copies of any tax returns, pay stubs, and bank statements for the past two years
The last tip for getting a self-employed loan is to include copies of any tax returns, pay stubs, and bank statements for the past two years. These documents will show your lender proof that you are making money off of your business; lenders want to ensure they won’t be giving out loans without attached income!
Most people who are self-employed have to jump through a lot of hoops when applying for loans. It’s not impossible, but you do need to make sure that your lender has proof of income and cash flow to get the funds!
5. Don’t make false claims about yourself or your business – it’s illegal and could result in criminal charges against you
Always be truthful in your reporting because everything will be reviewed before they issue you a loan. Submitting false claims could get you in real trouble. Make sure you’re honest with your application and stick to the facts.
The last advice we can give is to try out different lenders with lower rates before settling on one. You might have to fill out a lot of applications, but it’s better than signing on with a lender that charges you an arm and a leg in fees. Do your best and be available if they need more information from you for your application.