If you’re self-employed, you might know that it can be trickier to get a Loan. Lenders can be hesitant to give loans to people who are self-employed because their income isn’t guaranteed. But there are some lenders who’ll work with you. Plus, there are things you can do to improve your chances of qualifying for a loan. Even if you’ve got bad credit.
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What are bad credit loans for the self-employed?
Bad credit loans for the self-employed are exactly what they say they are. They’re loans to help business owners, or other self-employed workers who have poor credit get the funding they need, when they need it.
Unlike standard loans, which require a good credit score for approval, you can be self-employed with bad credit and still get a loan. But you’ll have a limited choice of lenders to borrow from.
How do bad credit loans for the self-employed work?
Bad credit loans for the self-employed work in much the same way as any other type of loan. You fill out an application with a lender and, if approved, you receive the money you need. You then pay it back in equal monthly instalments.
Lenders offering loans to self-employed people with bad credit look at more than just their credit score. They’ll look at how affordable it is for you. It’s how they try to help self-employed people and when they really need it.
The main difference with a bad credit loan is that you’ll pay higher rates of interest than on a standard loan.
Can I get an unsecured loan with bad credit if I’m self-employed?
If you’re self-employed and have bad credit, you’re likely going to find it tricky to get an unsecured loan. Most lenders prefer self-employed people to have a good credit rating.
You may find some specialist lenders who might lend to you if you can show that your business is strong. Otherwise, you’d need to have an asset to secure the loan against.
Who qualifies for a bad credit loan for the self-employed?
To qualify for a self-employed loan, you’ll have to be one of the following.
- Operating a business or profession as a sole proprietor
- A partner in a partnership
- A consultant
- An independent contractor
What can I use a self-employed loan for?
Bad credit loans for the self-employed can be used for a variety of purposes, including:
- Expanding your business
- Buying new machinery
- Upgrading technology
- Covering unexpected expenses
- Consolidating high-interest debt
If you’re self-employed and looking for financing, bad credit loans could be the right option for you. They could make a difference to your business’ ability to make it through a tough patch.
How can I apply for a bad credit loan if I’m self-employed?
The loan application process if you’re self-employed is no different to applying for any other kind of loan. There are some simple steps you can follow.
1. Work out how much you need
Be clear on how much you need to borrow and the reason you need the money. It’s important that you don’t get into more debt than you have to. The repayments on the loan must be affordable for you to pay back. This is something the lenders will want to see.
2. Get all your paperwork ready
When you apply for your loan, the lender will ask for some documents from you. It’s important you get these organised as it’ll help your application. The more proof you can provide to show that you can afford the loan, the better your chances of being approved.
Here’s a list of the documents the lender might want to see:
- Proof of your name and address
Documents that confirm you name, and address include the following.
- Your driving license
- Your passport
- Any utility bills in your name
- Information about your company or business
This would include information about what your business does. They’d also want to know if there’s anyone else who has a financial interest in it.
- Proof of your income
Whatever income streams your business has, you need to show proof of them. For example, if you own and rent properties, have your tenancy agreements on hand. You should be able to show the rental payments you receive too.
- Your tax returns
Being self-employed means you’ll have completed tax returns to HMRC. The lender is likely to ask for your tax calculations which can be found in your HMRC account. You can download a form titled SA302 from there and this will show proof of your income.
- Bank Statements
These are a good way of showing what income you receive. But the lender will also want to see these to find out what your outgoings are. It’ll help if you’ve been managing your account well and not going overdrawn.
3. Check who you’re eligible to apply with
It’s worth checking if you’re eligible to apply for a loan first when you’re self-employed and with bad credit. The best thing about doing this is that it won’t affect your credit score.
When an eligibility check is carried out, the lender or broker will just do a soft check on your credit file. And soft credit checks won’t be seen by other lenders. By finding out if you’re eligible to apply, it increases your chances of being approved.
4. Compare loans
Once you know who you’re eligible to apply with, compare the loans on offer. Being self-employed with bad credit, you’re likely to be offered high interest rates. By comparing the rates and charges, you could save yourself a lot of money in the long run. Choose the one that suits you best.
How can I check if I’m eligible to apply for a bad credit loan?
There are ways you can check that you’re eligible to apply for a bad credit loan while being self-employed. The two methods are listed here.
1. Go direct to the lender
You can go straight to the lender you want to borrow from and find out from them if you’re eligible. What you need to be eligible will be found on their website. When borrowing with a direct lender you know who you’re dealing and can get straight answers.
2. Use a broker
Brokers will look at the eligibility criteria of a panel of lenders. You enter your information, and they’ll look to see which lenders you’ll be eligible to apply with. A soft search may be done to verify you, but this won’t hurt your credit score.
How much can I borrow if I’m self-employed and have bad credit?
A self-employed person can apply for a loan for between £3,000 and £500,000. You can pay it back over a term of between one and 30 years. But this differs from lender to lender, so the amount and term of repayment can vary. The terms of the loan will depend on the following.
- How much you need to borrow
- Your financial history
- Your business performance
How can I improve my chances of being approved for a self-employed loan with bad credit?
There are things you can do to improve your chances of being approved for a self-employed loan with bad credit. The main thing you can do is improve your credit score. Here are some tips to help you.
1. Check your credit report
Have a look through your credit file at what’s been reported. Make sure there are no errors on there. You can check your credit report with the three main credit reference agencies in the UK:
- Experian
- Equifax
- TransUnion
2. Check for any errors on your credit file
Make sure that all your details are correct. If you find an error on your credit report, you should get it put right. The way to do this is to contact the credit reference agency and tell them about the error. You do this by raising a dispute with them. They will respond to your request within 28 days.
It’s worth making sure the information on your credit file is correct as it could affect your loan application. For example, an error in your address could stop you from being approved for a loan.
3. Make all your repayments on time
Making all your repayments on time can make a big difference to your credit score. Paying back your debts when they’re due shows lenders that you’re reliable. It shows them that you manage your money well now even if you haven’t in the past.
If you’ve missed any payments or have been late making them, bring them back up to date as soon as you can. Then always keep on top of them.
4. Keep your credit card balances low
Lenders prefer it when you’re not borrowing up to your credit limits. It shows them that you’re good at managing your money. A good amount to borrow would be around 30% of your total credit limit. This will help when you apply for your loan.
5. Register on the electoral roll
If you’re not registered to vote, then consider signing up. It’s a quick way to boost your credit score. By getting added to the electoral register, lenders can more easily verify your identity so it’s an easy way to improve your chances of approval.
Can I get a loan without proof of my income?
If you want to get a loan when you’re self-employed, you’ll have to provide proof of your income. And if you’ve got bad credit, it’s essential. This is because reputable lenders must comply with the rules set down by the Financial Conduct Authority (FCA). The FCA regulate financial firms in the UK. Reputable companies will register with them, and you can check on the FCA website if they’re registered.
The FCA state that lenders must check that the loan is affordable for you before they approve your loan. To do this, they’ll have to be sure that your income is sufficient to make the repayments. And for this they’ll need proof of your income.
What are the repayment terms and conditions for self-employed loans?
Repayment terms on a loan when you’re self-employed will vary depending on certain criteria, including:
- If you’re securing your loan against an asset
- If you have at least three years of accounts to show
- If your business performance is strong
- If you’ve got regular cashflow to show that you can afford the repayments
If you don’t secure the loan against an asset when you’ve got bad credit it’ll make it harder to borrow. If you can find a loan, the interest rates will likely be higher.
What are the benefits of a bad credit loan for the self-employed?
The benefits of a bad credit loan if you’re self-employed is that it can help your business in different ways. You could use it to help grow your business or to upgrade your equipment.
If you get a bad credit loan you could get flexibility on how long you take to pay it back. Your monthly repayments on a 5 year term will be less than on a 3 year term. But the longer you take to pay it back, the more it’ll cost you.
Final words
For the self-employed, bad credit loans can provide a much needed financial lifeline. It’s true that most lenders prefer borrowers to have good credit scores. But there are lenders who’ll lend to people who are self-employed with bad credit.
Loans for the self-employed can help with business expansion or unexpected expenses. For the self-employed, bad credit loans can provide a welcome source of financial stability.
Disclaimer: The information given above is provided for reference only.
