8 Personal Loans To Consider When You're Self-Employed

If you're self-employed, a personal loan can be as useful to you as to anyone else, whether the money goes to fund a kitchen remodel, dream vacation, wedding, or debt consolidation. But getting a personal loan while self-employed might be more complicated or require more paperwork. We'll walk you through the process and cover which lenders make it easiest while offering competitive rates and terms across the credit spectrum.

We chose Upgrade as the best lender for self-employed loans based on interest rates, accessibility for fair-credit borrowers, fast funding, multiple discounts, the availability of secured loans, and more.

Upgrade

To apply, self-employed borrowers must provide their two most recent tax returns.

SoFi

To potentially qualify for a loan, self-employed borrowers will generally need to show proof of consistent income through tax returns or bank statements.

In addition to income, SoFi will also consider your credit score, and education level.

Best Egg

Best Egg works with borrowers who have a variety of employment statuses, such as salaried, self-employed, or retired.

Be sure to check with Best Egg to see what documentation you’ll need to provide.

Upstart

If you’re self-employed, you’ll need to submit the previous year’s full tax return plus proof of recent income in the form of a digitally deposited check image or a business invoice.

LendingClub

If you’re self-employed, you’ll need to submit a recent tax return or other forms like a 1099 as proof of income.

Happy Money

Self-employed borrowers will need to submit the first two pages of IRS Form 1040 along with the first two pages of either the Schedule C or K1 form.

Avant

If you're self-employed, Avant requires that you submit your two most recent years’ complete, official tax documentation.

Methodology

Credible evaluated more than 31 lenders using more than 800 data points to find the best loans for self-employed workers. We began by excluding lenders that don't provide self-employment loans. Our team of experts also gathered information from each lender's website, customer service department, directly from our partners, and via email support. We chose the best lenders based on the following weighted categories:

• Rates and fees: 18%
• Loan terms: 18%
• Customer experience: 17%
• Eligibility: 14%
• Customer satisfaction: 10%
• Efficiency: 10%
• Options for poor credit and no credit: 9%
• Discounts: 4%

Each data point was verified by a senior editor to make sure it was accurate and up to date.

Learn more about how Credible rates lenders by exploring our personal loans lender rating methodology.

How to compare personal loans as a self-employed borrower

As you begin your search, remember that some lenders might make little, if any, distinction between self-employed loans and personal loans.

"We don't have a special niche for freelancers, gig workers, etc.", says Alia Dudum, a spokesperson for LendingClub, an online personal loan lender. "We treat all applicants the same in terms of decisioning."

If the lender offers prequalification with a soft credit check, take advantage of it. A soft credit inquiry has no impact on your credit, and you can get an idea of what interest rates and terms you might qualify for. Remember, though, that prequalification does not represent an actual offer of credit or guarantee qualification or terms. The interest rate and terms of a formal loan offer could be different from the results you see during prequalification.

Unlike prequalification, applying for a loan typically triggers a hard credit inquiry by the lender that could temporarily bump your credit score down by as much as five points.

As you shop for a loan, here are some key elements to consider:

Interest rates and APR

A loan's interest rate represents an amount charged annually to borrow money. But don't confuse the interest rate with the annual percentage rate (APR). APR factors in the interest rate and upfront fees, such as an origination fee, so it provides a more accurate estimate of the loan's total cost.

Borrowers with good credit or better tend to receive lower interest rates. Your overall credit history, income, and other factors determine the interest rate the lender ultimately offers.

Improve your chances at a lower interest rate by paying off outstanding credit card debt and lowering your debt-to-income ratio (DTI).

Loan amounts

Check to make sure the lender offers the amount you need. Loan amounts range from a few hundred to $100,000 or more, but most lenders offer between $2,000 and $50,000. What you'll qualify for depends on your credit score, income, DTI, and other factors like loan purpose. It's common for lenders to reserve loans of $100,000 or more for expenses such as home improvement projects.

Repayment terms

Personal loans typically need to be repaid in two to five years, although some lenders offer seven-year terms and longer. The length of your repayment term can make a big difference in the size of your monthly payment and the loan's overall cost. Consider this example of a $20,000 loan at 20% interest with a five-year term or a seven-year term:

While the seven-year term has a lower monthly payment, you'd pay over $5,000 more in interest over the course of the loan.

If you're concerned with your monthly cash flow or can't afford a higher monthly payment, a longer repayment term might be the better option. If reducing interest costs over the life of your loan is your primary goal, a shorter-term repayment option might be preferable. Use a personal loan calculator to simulate different payoff terms and figure out the best course of action.

Fees

Some lenders may charge an origination fee, which is typically deducted from the loan amount upfront. Other fees may include late payments and insufficient funds or returned payment fees. The APR accounts for upfront fees, so be aware that a loan with a lower APR could carry an origination fee while a loan with a higher APR may not.

Consider how an upfront fee will impact the amount you receive and plan accordingly.

Funding times

The time you must wait to receive your loan funds varies from lender to lender. Employed individuals typically get money within one to three business days of approval. However, as a self-employed person, you may need to supply additional documentation that could take lenders longer to review. Or, your application may need to go through a manual underwriting process. Plan to wait at least five business days to receive money.

If fast funding is important to you, compare funding times between lenders prior to applying.

What does self-employed mean?

It means you don't work for an employer. Private contractor, freelancer, gig worker, sole proprietor, or business owner, whatever title you prefer, you're the boss. You set your own hours and call the shots when it comes to business decisions. Unlike employed workers, you don't receive a W-2 wage and tax statement.

It also means you pay self-employment plus individual taxes, that you're responsible for sourcing your own healthcare, and have a host of other expenses that rank-and-file employees don't.

Paying for these obligations, budgeted or otherwise, may be just one of the reasons you're considering self-employed loans.

Note: Be aware that only a few lenders offer personal loans for business expenses. Approved purposes for personal loans typically include expenses such as medical bills, auto repairs, and home improvement.

How does a self-employed loan work?

A self-employed loan is like any other loan. You borrow a sum of money and pay it back until the loan amount, plus interest, is fully repaid. There are different types of self-employed loans: loans for personal expenses (personal loans) and loans for business-related expenses (small business loans). In this article, we cover how personal loans for self-employed individuals work.

The main difference between personal loans for self-employed and personal loans for employees is the documentation you're required to produce. Employees typically show a lender their W-2 and/or paystubs as verification of their employment and income. But if you're a nontraditional or self-employed worker, you'll have to provide other forms of documentation, such as 1099s and tax returns. The more you can document and substantiate your creditworthiness, the more likely you may be to get the loan.

How to get a personal loan when you're self-employed

1. Get an idea of potential interest rates, repayment terms, and loan amounts by prequalifying with multiple lenders.
2. Make sure the lender offers personal loans for the purpose you have in mind.
3. Compare loan quotes to discern the best choice for you.
4. Gather documentation supporting your income.
5. Apply.
6. Provide any additional documentation requested.
7. If approved, review and sign the loan agreement and any other documents.
8. Await funding.

If you think your credit might be a problem, pay off outstanding debts to reduce your debt-to-income ratio and check your credit report for errors (reports are available for free at AnnualCreditReport.com).

Proof of employment and income

1099 forms

As a freelancer or independent contractor, if you provide clients with more than $600 in services annually, they generally must provide you with a 1099 form. Most likely, this will be an IRS 1099-NEC (nonemployee compensation) form. You may receive several 1099 forms if you have multiple clients.

Bank statements

Similarly, lenders may ask to see bank statements going back three months or longer. They're looking for consistency and cash flow to verify your ability to repay.

Profit & loss (P&L) statements

A lender may require or accept profit and loss statements for a self-employed loan. You can use the information from Schedule C of your tax return. These records help establish your income and provide an overview of your business finances. You can find examples of how to write your own P&L statement online at websites such as Accion Opportunity Fund.

Other ways to prove income

There are more than 20 types of 1099s, and each may present an opportunity to show a lender that you earned more income than what's reflected in your 1099-NEC. You may also receive:

• 1099-INT for taxable interest income, such as interest earned on a savings account
• 1099-DIV for stock dividends or capital gains distributions from a mutual fund
• 1099-R for distributions from a savings or investment plan such as an IRA, annuity, or pension

Other documentation

Some lenders may require you to submit a transcript of your tax return, which you can request from the IRS for free with a 4506-T form. This form shows your financial data while partially masking personally identifiable information such as your Taxpayer Identification Number (TIN).

"We use it to verify the accuracy of the financial information you entered on the application," LendingClub's Dudum says.

Pros and cons of a personal loan

Why getting a personal loan while self-employed is challenging

Banks, credit unions, and online lenders calculate risk when they consider whether to approve personal loans. They may see self-employed workers as riskier to do business with if their income is sporadic (think seasonal employment for snowplow operators, for example). On the other hand, a good credit score and strong credit history are likely to work in your favor.

Plus, they may need to send you through a manual underwriting process as opposed to an automatic or AI-driven one. This could increase the amount of time it takes to get a loan when you're self-employed.

Alternatives to personal loans

If you decide a personal loan isn't the ideal option, you can choose from a variety of alternatives to personal loans.

SBA loans

If you need a loan strictly for business, put the Small Business Administration (SBA) on your list. Although the SBA doesn't make loans, it provides guarantees on loans issued by its network of banks, credit unions, and alternative lenders. Funding can range from $500 to $5.5 million, depending on the specific loan program. SBA loans generally offer interest rates and terms comparable to loans not guaranteed by the SBA. Note that your business must meet certain eligibility requirements, including creditworthiness.

Revenue advances

A revenue advance provides money as an advance on your business's future sales. Revenue advances are available from lenders such as Fora Financial and payment platforms such as PayPal through its Working Capital business loan program. Advance funds and fees are typically repaid as a percentage of your sales. Although revenue advances can be a quick way to get cash without a credit check, remember that you're effectively pledging future sales as collateral. Also, revenue advances are exempt from interest rate caps, which could make this form of borrowing expensive.

Invoice factoring

If customers have yet to pay you for the goods and services they bought from you, you might be able to sell the unpaid invoices to an invoice factoring company for a percentage of their value (invoice factoring). The factoring company assumes responsibility for collecting the outstanding bills, and your customers pay the factoring company directly.

Invoice financing

With invoice financing, you borrow against unpaid invoices, using them as collateral, instead of selling them. If your loan is approved, you receive an advance based on the estimated amount of your invoices. When your customers repay you, you then repay the financing company.

Credit card

A credit card might be a good choice if you need to cover small or ongoing expenses, as you can repeatedly draw on and pay off your credit line. Some cards come with a 0% APR introductory period, which means you could avoid paying interest if you repay the balance before the introductory period ends. If you don't, however, the card's regular APR applies to the unpaid balance.

However, most credit cards charge compound interest daily on the unpaid balance, which means interest can build rapidly. And credit card APRs are higher on average than many other forms of borrowing, including personal loans.

Home equity loan or home equity line of credit

If you own your home, you might be able to access your home's equity through a home equity loan or home equity line of credit (HELOC). While these loans typically have lower interest rates than personal loans and other forms of borrowing, you risk losing your house if you can't make your payments.

Family loans

Family loans fall into one of two categories. "Gift loans" of up to $10,000 generally aren't subject to interest or repayment. However, the IRS requires that family loans of more than $10,000 charge interest in line with the Applicable Federal Rate (AFR), and the family member who loaned you the money may have to report the payments as income. Tax implications aside, borrowing money from a relative can strain family relationships.