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Bank loans are great for low interest rates, but because of their strict underwriting requirements, self-employed business owners may have more luck with online lenders or alternative types of financing.
Lenders look for steady revenue when offering a self-employed business loan, often of at least $100,000 annually.
Credit cards and personal loans may be an option if you can’t get a business loan.
If you’re working for yourself, money can get tight — especially when you’re trying to grow your business. A business loan for self-employed people can give you the capital needed to cover short- and long-term business goals. You can use it for working capital expenses or any other business-related need, such as investing in marketing, equipment or other products and services that will help you expand.
You don’t need to have incorporated your business or established an LLC to get financing, either. Have you ever wondered, “Can I get a business loan as a sole proprietor?” The answer is a resounding yes. In 2024 alone, the Small Business Administration backed more than 3,000 loans for sole props, to the tune of over $630 million.
Getting a self-employed business loan gets easier when you know what it entails and where to look. We’re here to help with precisely that. Here are the steps to take to get a business loan as a self-employed individual.
Be able to prove steady revenue
Your level of revenue will play a role in getting approved and for how much. Most lenders are looking for at least $100,000 in annual revenue, but some lenders take less. Banks tend to want to see higher revenue ($150,000+), while online lenders will generally have lower requirements.
The more revenue you can prove, the more likely the lender is to feel that you can pay back what you borrow. The keys here, then, lie in not just generating the revenue, but also in tracking it. Make sure you have a reliable way that you’re monitoring paid invoices, credit card sales or any other revenue channels you have.
As your business matures, your tax statements become a huge help here. Your tax returns include your gross and net revenue, and turning them over to lenders can validate your candidacy for a self-employed business loan. That’s true even if you file your business earnings under your personal taxes (i.e., if you operate as a sole proprietorship).
Go with a self-employed friendly lender
A quick internet search should point you in the direction of financial institutions willing to offer a self-employed business loan. PNC, Fibre Federal Credit Union and Discover all have dedicated landing pages geared toward helping people who work for themselves find financing, for example.
If you’re struggling to get a self-employed business loan, look for a lender that’s backed by the SBA. Because SBA loans are guaranteed by the federal government, the lender gets help recouping some of their losses if you don’t repay what you borrow. This makes the lender more open to underwriting a loan they may deem somewhat risky, like a business loan for self-employed folks.
Offer collateral
Since backing the loan with assets guarantees that you can repay, lenders look more favorably on a loan application secured by collateral.
Some things you can put up for collateral for your business loan include:
Any company real estate, like your office location
Business equipment
Company vehicles
Personal assets like your house or investments
Inventory
In some cases, you can also pledge future earnings as collateral for the loan. With invoice factoring, for example, you can get an advance for a percentage of unpaid invoices, which the lender then collects. (Be advised, though, that invoice factoring usually comes with unfavorable terms compared to other small business loans.)
Gather the required documents
As a freelancer or self-employed business owner, you may not have all the same documents as an employer-based business. To show that you do get revenue from self-employment, you’ll usually need:
Personal bank statements
Business bank statements, if separate
Tax returns (either your business tax returns or your personal ones with Schedule C or SE included, depending on how you file)
1099 forms
Business financial statements, such as a balance sheet or reports from accounting software
LLC formation or incorporation documents, if applicable
Choose the right kind of loan for your needs
Freelancers and self-employed business owners can get most of the same business loans as other businesses. You can choose the type of loan that best matches your purpose for funding.
Banks tend to offer the lowest interest rates compared to other lenders, helping you save money in borrowing costs in the long run. But banks may consider your self-employed business more risky than other businesses, especially if you haven’t built up total revenue or steady or diverse streams of income. If you don’t have a credit score of 670 or higher and at least one to two years’ time in business, you may need to look at other types of lenders.
You also have a better chance of approval with small local or regional banks. Small banks approved 37 percent of single-member businesses who applied versus 29 percent with large banks, according to the 2023 Report on Nonemployer Firms.
Online business lenders often use alternative data when they’re reviewing a business’s credit. For example, these lenders may look at personal bank statements and bill payments that aren’t reflected in your personal or business credit score. Using alternative data helps online lenders approve startups or freelancers that don’t meet the guidelines for a traditional bank business loan.
Online lenders also tend to have less-strict lending requirements. Many take startups with at least six months in business and personal credit scores in the low 600s. A few lenders will drop credit score requirements even lower and offer loans with no set time-in-business requirement or credit scores as low as 450.
Business lines of credit blend the features of a credit card and a business loan, setting a loan limit that you can borrow from at any time. Most business lines of credit from online lenders offer short repayment terms, usually between six and 24 months. But the short terms and ability to reuse the credit make it helpful to cover short-term expenses as they arise.
On average, 60 percent of nonemployer businesses need financing to help them pay operating expenses, according to the 2023 Small Business Credit Survey by the Federal Reserve Banks. Business lines of credit offer the flexibility required to cover these day-to-day expenses.
Once you’re approved for the credit line, you can tap that line as needed (up to your limit) to receive and spend funds. If you have strong credit, this form of financing tends to offer interest rates as low as bank term loans. For example, lenders may offer interest rates for lines of credit starting at 8 percent.
SBA loans are business loans that are partially guaranteed by the Small Business Administration. Because SBA loans offer repayment terms of up to 25 years, self-employed borrowers can stretch out payments over a long time. This lowers the monthly amount, freeing up capital to use in other areas of the business. SBA loans also cap interest rates to a ceiling than many business loans.
But many lenders have tight requirements to get an SBA loan. For example, for SBA 7(a) and 504 loans, some lenders require personal credit scores of 650 or higher, at least two years in business and annual revenue of around $200,000.
If you don’t meet a traditional lender’s guidelines, you could look for a self-employment loan through a community development financial institution (CDFI) or Community Advantage lender. These lenders focus on serving underrepresented communities, lowering requirements for eligibility. They offer 7(a) loans, the SBA’s most popular loan program, but only for loans up to $350,000.
The SBA weekly lending report provides information about SBA 7(a) and 504 loans. It even shows the best states for SBA loan approvals, which are currently California, Texas and Florida.
Microloans are business loans with smaller maximum loan sizes than you’d find with a standard business loan. While there’s no standard for what qualifies as a microloan, microlenders may cap these loans around $100,000 or less. For example, an SBA microloan goes up to $50,000.
Microlenders also tend to serve underrepresented business owners, such as minority business owners, veterans, women or people in low-income areas. According to an SBA press release in fiscal year 2024, the SBA approved 5,800 microloans for a total of $94 million. Of those, 33 percent went to Black-owned businesses, and 14 percent went to Latino-owned businesses.
Business credit cards work well if you’re looking to cover expenses that can be paid off quickly. As long as you pay off the card in full each month, you won’t pay any interest on the purchases you made.
The best business credit cards also let you earn perks and rewards. Many cards give you 1 percent to 5 percent cash back from purchases, while others let you earn points you can redeem for travel, cash and more.
As a freelancer, independent contractor or sole proprietor, every dollar counts — and you won’t get the chance at zero interest with standard business loans. Business credit cards also welcome unincorporated businesses, not requiring you to be an LLC or corporation to apply.
A personal loan is a loan borrowed under your personal name rather than your business. Personal loans work well for startups that don’t have the credit history to qualify for a traditional business loan.
And while it’s possible to get a self-employed business loan without forming a legal business, personal loans won’t require you to show business formation documents.
However, some personal loans will include restrictions on how the funds are used and may restrict the funds from being used for business purposes. You’ll need to read your loan agreement carefully to make sure you’re using the loan in accordance with the contract.
Additionally, if you get an unsecured personal loan, you won’t have to back the loan with personal assets. Many business loans require you to sign a personal guarantee, which allows the lender to go after your personal assets if you can’t repay the loan.
Merchant cash advances (MCAs) have high approval rates, making them an attractive option if you don’t qualify for other business loans. MCA lenders approve you based on your past sales revenue, typically for businesses taking credit or debit card sales.
Because MCA lenders rely on your sales history, they tend to approve even businesses with bad credit, such as a personal credit score of 550. Many MCAs also approve and deposit funds quickly, in as little as 24 to 48 hours in some cases.
You usually pay an MCA daily or weekly, which could strain your business budget until the debt is repaid. MCAs also come with high fees that convert into interest rates of 50 to 100 percent or more.
Because you’re bound to get approved but are charged high fees, merchant cash advances are best used as a last resort when you need funds to cover emergency expenses.
Most common loans
When non-employer businesses need funding, owners of new businesses (less than two years old) tend to apply for credit cards (35 percent), loans (16 percent) and lines of credit (12 percent), according to the 2023 Small Business Credit Survey.
More established nonemployer businesses most often seek out credit cards (31 percent), loans (18%) and lines of credit (12 percent).
Compare offers to make sure you’re getting a good deal
Since there are so many different ways to get a business loan for self-employed people, just finding out which type of financing is right is already a lot of work. Don’t stop there, though. To make sure you don’t overpay in interest or fees, take a few more steps.
Specifically, apply with at least three lenders. This way, you can compare rates and terms, illuminating which self-employed business loan will be most advantageous for you and your company.
As you look at loans, compare annual percentage rates (APRs). These represent how much you’ll pay each year to maintain the loan, including not just interest but also recurring fees. Looking at each loan’s APR helps you compare apples to apples. ‘
Then, compare that APR against the average rate for the kind of business loan you’re getting. It’s normal for your rate to be a little higher because you’re somewhat risky as a small business, especially if your company is new.
Bottom line
When you’re self-employed, your main challenge is growing revenue to serve more customers — often with less capital than other businesses. Getting a business loan can give you the boost you need as long as you meet the lender’s requirements.
Fortunately, those requirements vary depending on the lender and the type of financing you’re getting. Exploring your options makes it easier to find the right business loan for self-employed people in your specific situation.
Frequently asked questions
Many lenders require at least two years in business to get a self-employed business loan, giving you ample time to build revenue. But it’s possible to get a loan in a year or less as long as the lender accepts startup businesses.
Yes, lenders will offer business loans to those self-employed as freelancers or sole proprietors. You have to meet eligibility requirements to qualify, but you can improve your chances of approval by going with a lender that welcomes self-employed business owners.
Lenders consider all income that you get from your self-employed business. They can verify this income through your personal bank statements and tax returns.
Yes, independent contractors are eligible for SBA loans. Under the SBA’s definition, small businesses qualify as long as they don’t exceed a specific revenue limit or number of employees. The limit varies by industry anywhere from 100 to 1,250.
