Self-employed individuals usually find it much more difficult, if not impossible, to get an approval for any significant loan. This should not surprise as most loan providers aim to avoid or lower exposure to risks. But it could be possible for such borrowers to actually be approved for any loan.
One logical requirement to get a loan if you are self employed is to generate or maintain a high credit score. Good credit rating could be a good start. That indicates your level of financial responsibility. Other than that, it helps to have a great bank account or a number of liquid assets. Here are four recommended and effective ways to surely obtain loan approvals even if you are self employed.
1. Keep your financial records precise and detailed. Make it a point to maintain your tax forms, receipts, bank statements, and business accounting records. Most loan providers avoid possible exposure to risk. As a self-employed individual, you have to convince your lenders that you are actually a good risk even if you are working on your own. There may be no other way to do that than to present documentary evidences that you indeed could take and meet financial obligations like loans. Present more proofs of your steady flow of regular income from any business or investment.
2. Select an appropriate loan type. How about a no documentation loan? The loan provider will not require and verify any income information. This type of financing product is best for self-employed individuals who do not possess enough documentary evidences of steady income flow. It is also for entrepreneurs who are having startups or having ventures that make low profits. However, expect to incur additional charges and higher interest rates because lenders would logically compensate for their risk exposure.
3. Offer a security. As mentioned, lenders do not want to get exposure to high risks. Employed borrowers with fixed income would be easily preferred. But if you are self employed, you may choose secured loans or those that require collaterals, usually a property or other qualified forms of assets. The idea is to assure loan providers that even if you fall into default, they would not stand to lose their capital. You would have to agree that in case you fail to pay the loan amount plus charges and interests in a specified duration, your collateral would have to be repossessed by the lender. Thus, you may also enjoy faster loan processing and lower interest rates.
4. Shoulder down payment. If you are taking a significant loan like a home or car loan, it would be wise to take those options that come with required down payment. You may opt to make a larger than required down payment. This way, you could bolster your chance of getting an approval. You can also reduce the principal amount, which may lead to lower regular amortisations and shorter term of the loan. You may have to save up a little amount of money before applying for and taking a huge loan to ensure faster approval.
Andrew has been writing about personal finance for over 4 years. Andrew has published numerous articles and provided numerous advice on various forums. Andrew’s favourite topics include bad credit, self employed personal loans and debt management solutions. When he is not writing, Andrew enjoys spending time with his family and friends.