Most people dream of being their own bosses or at least being self-employed. You get a flexible schedule, the ability to create your own pay, and the freedom of not having anyone lording over your shoulder all the time. With that said, there are also disadvantages.
One of the biggest disadvantages to being self-employed is that it becomes difficult to get a loan. This is because lenders don’t really like the idea of risking a large sum of money on someone who might not make the same amount of money throughout the year.
Here are a few ways to get approved for a loan if you’re self-employed:
1. Before You Go Self-Employed, Apply for the Loan
If you’re planning on giving up your 9-5, your best bet would be to apply or refinance your loan before doing so. When lenders see that you have a regular paycheck, they will be far more comfortable loaning you out money. This can especially help if you are taking out a loan to start your own business.
2. Prep Your Tax Returns
The standard rule is that lenders (among other people such as property owners who rent) want to see two years of tax returns from if you are self-employed. This will typically be followed by them asking for your income over the past two years as well. You have to remember that even if you have a large projected income over the next year, there is no proof for a lender to show that. One of the only alternative ways to get around this would be to get a collection of invoices or contracts with assured revenue.
Our point is, if you have just become self-employed, you might need to wait a few years and be good on your taxes to get that loan.
3. Get Your Documents In Order
When you deal with a loan officer, you are dealing with a person. This person can make exceptions or give you better deals if they believe you have your business together. Your tax returns, financial statements, rental income proof, bank statements, and company information, should all be included in your provided documents when you start applying for a loan.
4. Boost That Credit Score
One of the most important things for proving yourself to a lender is having a good credit score. Having a good credit score means that you currently pay your loans off on time and in-full each month. Making your payments on time and making sure that you balance out your credit are great ways to boost your credit score!
Whether you’re applying for a personal, mortgage, or business loan, it’s worth knowing that you’re going to have to work a little harder to earn it if you’re self-employed. Don’t let that scare you though! Just make sure to keep your credit score high, do your taxes properly, and have all of your prepared documents filed and in order when you go to get your loan!
Are you a self-employed person who has experience applying for a loan? Let us know about it in the comments!