Self-Employed Loans: 5 Easy Ways To Increase Your Chances Of Getting Them

Self-employment comes with certain privileges and advantages. But it also has its fair share of risks and challenges. Most entrepreneurs struggle in the areas of business management, finance management and loans acquisition.

For workers in regular, traditional employment, getting a loan is very easy. Self-employed business owners aren’t so lucky. Lending institutions are especially wary of granting loans to the minority of workers who defy their descriptions of the ‘trustworthy borrower’. Lending is even more complicated for entrepreneurs who have no records of having a steady income. 

“Financial experts are typically trained to be risk-averse,” says Gilbert Dudley, finance experts and author of five business and finance books. “The self-employed businessperson might genuinely need that loan for a mortgage, car or business expansion project, banks and lenders will refuse to approve their loan applications, except the applicants, prove themselves.”

Even with all the hiccups and bureaucratic bottlenecks that exist in financial institutions, many succeed in getting self-employed loans all the time. Journals and forums are filled with the reviews and success stories of entrepreneurs who received loans from decent lending institutions such as The Associates Home Loan of Florida, Thrift bank and Federal Home Loan Bank.

What did these people do differently and how did they succeed?  To save you the trouble, we have compiled a list of the 5 most effective things you can do to increase your chances of getting that self-employed loan.

1.      Become Debt-free

Although this might seem like a tall order, it is a very important step in ensuring that your loan applications are approved. 

“When an application for a self-employed loan reaches my desk, I first check to see if the applicant has any outstanding loans,” says Gilbert Dudley. “It is incredibly risky to lend an incorrigible debtor more money.”

Pay off outstanding business loans, if you want a business loan. If, however, your interest is in a personal loan, ensure that you have no outstanding personal debts. A pile of outstanding loans indicates that you’re an unreliable borrower.

2.      Better still, apply while you still have a traditional 9-to-5 job.

Many banks and lenders seem to distrust self-employed business owners, so aspiring entrepreneurs submit their loan applications before they quit their traditional day-jobs.  This makes perfect sense especially when you consider that the application process is easier and more straightforward for nine-to-fivers.

“As a financial expert, I tell aspiring entrepreneurs to save some money before they quit their day job. The business world can be very unpredictable,” says Gilbert Dudley. “Self-employed business owners often don’t qualify for loans before their business crosses the two-year mark. “Applying for that loan while you’re traditionally employed will save you a lot of financial trouble when you venture out into the world of business.”

Don’t wait until things get complicated as a self-employed business person. Contact your preferred lender about refinancing your credit card, getting a mortgage or getting a student loan. Apply now while you still have that stable, traditional job.

3.      Make room for higher interest rates

Let’s face it. Borrowers aren’t treated equally. Non-traditional borrowers (the category self-employed business owners are classed under) are expected to pay slightly higher rates.

“When entrepreneurs hear this, they complain about unfairness and injustice, but the truth is that non-traditional borrowers are high-risk. Banks and lenders feel entitled to a higher interest rate on their money because they are taking a big risk with you,” explains Gilbert Dudley.

4.      If your business hasn’t been in existence for a minimum of two years, desist from sending that loan application.

One study revealed that one out of two businesses fails within their first year. And many more businesses are likely to fail in their second year. The assumption is that only a healthy business is likely to survive past its second year.

“Another secret to getting business loans is this: wait until your business has existed for at least two years, else, no lender will listen to you,” advises Gilbert Dudley. “Longevity is a determining factor in deciding which businesses are worth pumping money into and which aren’t.”

If your business has survived for two years or more, congratulations. There is a high chance your loan application will be approved.

“Occasionally, lenders make exceptions for businesses that have a stellar track record and impressive business growth,” says Gilbert Dudley. “If you are desperate and have no other alternatives, you can apply for a business loan provided you’re able to show impressive business growth and productivity regularly.”

5.      Improve your credit score.

Before you apply for that self-employed personal loan, make sure you have a high credit score. The same goes for entrepreneurs who are aspiring to get a self-employed business loan/ Your business credit score has to be impressive too.

Before you commence the application process, go through your credit score. Scrutinize the reports to ensure that there aren’t discrepancies you’d like to correct. Feel free to take as much time as you’d need to maximize your credit score.

Final thoughts on getting self-employed loans

Getting a self-employed loan requires a great deal of introspection and research. If you can afford it, consult a financial expert. 

Choose the best lender for your needs. According to some financial experts, self-employed business people fare better when they get loans from reliable banks and loaning institutions.

The planning and preparation process can make or mar your loan application too, so you want to spend adequate time and effort in the planning and preparation phase. 

Have you ever applied for a self-employed loan, what made all the difference for you?

Picture credit: Alexander Mils on Unsplash