Basic guide in getting a self-employed loan
Types of loans: self-employed loan
Being self-employed definitely has its perks and pitfalls. Self-employed loans are proof of such a pitfall as they are much harder to obtain when compared to individuals working for an employer.
Governments around the world, however, realize that entrepreneurs contribute to a major portion of economic growth within a country. Therefore, although more difficult to obtain, a variety of self-employed loans are available. These include:
Secured and Unsecured Self-employed Loans
These are the two major categories for loans.
Secured loans simply mean that some kind of security is given to the financial institution in return for a loan. This security, also known as collateral, is an asset which is provided by the entrepreneur to the financial institution which they can liquidate should the entrepreneur fail to make payment on the loan. Assets can be any item of value such as a home, vehicle or monetary saving such as a pension etc. Because the risk is lower, a lower interest rate is usually charged for the self-employed loans.
Unsecured loans are charged at a higher interest rate to make up for the higher risks taken by the financial institution. Should the applicant default on payments, the only recourse a bank can take is to report this to the credit bureau.
Types of Self-employed Loans
There are various types of self-employed loans that entrepreneurs can apply for including:
- Short term loans
- Personal loans
- Home loans
- Business loans
- Vehicle asset loans
Self-Employed Loans For Entrepreneurs With Bad Credit
Believe it or not but self-employed loans are also available to individuals with a poor credit history. These loans are generally offered by private financial institutions but will come at a hefty price. Self-employed loans for individuals with bad credit are usually not offered by the large commercial banks as entrepreneurs will be too much of a credit risk. It is for this reason that private lending institutions offer loans, but at very high interest rated.
How To Obtain Self-employed Loans
There are various methods to use when searching and applying for self-employed loans. They include:
- Online applications
- Telephonic applications
- In-house application at the branch
It must be noted that online applications are usually used only to give the entrepreneur an indication if he/she would qualify for a self-employed loan and for how much. Applications need to be accompanied by documentation and these usually include:
- Personal identification
- Business license/registration number
- 2 Years income tax returns
- Profit and loss statements
- Balance sheets
- Gross profit/total earnings letter for the last 12 months from an accountant
- Business and personal bank account statements for at least 12 months if not banking with the same bank
- Utility statements of the last 4 months
Always ensure that you have copies of the documents that you provide to the bank. When applying for self-employed loans in a partnership, the self-employed business partner will also have to submit the same documentation.
Individuals seeking more information on self-employed loans can click on the links provided on this website.