Getting a loan if you're not employed
Types of loan: self-employed loans
It is becoming increasingly more common for people to be self-employed or work from home. People that do own their own business will likely need a loan at some point in order to buy a home or a car. Unfortunately, banks and other lenders can make it very difficult for these people to obtain self-employed loans.
This problem is particularly bad after the global financial crisis. Before this happened, there were plenty of lenders that catered to self-employed applicants without requiring years worth of paperwork. However, many of these specialist companies have gone away and the ones that remain require more paperwork for those that don't have traditional jobs.
People with traditional jobs usually don't have much of a challenge when trying to secure a loan as long as they make enough money. They have the advantage of providing the lending institution some of their past pay stubs to prove that they make as much as they claim to. The person in charge of approving the loan can also contact the employer to verify this information.
One of the main problems you will have when trying to secure self-employed loans is documenting your income. There will be no past pay stubs for you to submit. Therefore, you will need to keep excellent records of exactly how much money you make, but that still might not be good enough for the lender.
Nowadays, most institutions will require that you submit your federal tax return as a proof of your income. You may have to submit these returns for the last two or three years most likely. Since it is possible for people to fake these returns, it is usually necessary to authorize the institution to get a copy directly from the IRS.
If you own your own business or are self-employed, then you probably qualify for a lot of write-offs and deductions on your tax return. This isn't necessarily a good thing if you're trying to get a loan. These deductions and write-offs will reduce the total amount of income on your return. You would increase your chances of getting approved if you show as much income as possible.
Another common problem when trying to get self-employed loans is showing that your income is very stable. When you work for yourself or own your own business, the lending institution won't know if you'll continue to maintain that level of income. You will almost certainly have to give the institution a look over your books for the past few months before even being considered.
Lending institutions normally don't like giving loans to newly established businesses. If you haven't been in business a long time, you would likely get denied. It is best that you have been in business for at least three years and can back that up with proof.
There are various ways that you can prove how long that you have been in business when trying to get self-employed loans. The absolute best way is to submit a copy of your business license. In the old days, a letter from your business' accountant would suffice, but this may not be good enough nowadays.
It can be very tough getting a loan for a car or a home if you own your own business or work from home. You will have to submit much more documentation than your counterparts who have traditional jobs. However, as long as you can prove your level of income and its stability, you should have a good shot. It will also benefit you more if you have been in business a much longer period of time.