There are many benefits of being self-employed, but when it comes to getting a loan, it can be tricky if you do not have the detailed accounts to prove your income as does a person who has an employer. It is likely that, as a self-employed person, your personal accounts may overlap somewhat with your business accounts as you may re-invest into your company. This means that, for a loans provider, it is difficult to accurately decipher your income, thereby making it a trickier process when deciding whether or not to grant you a loan.
Why Get a Secured Loan If I’m Self Employed?
In the case of unsecured loans, a loans provider must accurately assess your financial situation, including your spending habits and your credit score, before they are able to deem you eligible for an unsecured loan. Because a secured loan uses an asset of yours as collateral, it is safer for a loans provider to lend money to you than when the amount is not secured against anything. This is why secured loans are better options for people with poor credit histories or self-employed people with inaccurate or unreliable overviews of their accounts.
To be considered self-employed you must:
- Operate a business or profession as a sole proprietor
- Be a partner in a partnership; or a
- Independent contractor;
- Someone in changeable employment
The loan rate typically hinges on whether you have certified accounts or some form of proof of income. Your loan application will be processed more easily if you are self-employed with accounts worth three or more years and a good credit record. These requirements usually mean that you will stand on the same platform as any regular salary worker.
How Much Can I Borrow?
If you apply for a loan that is secured against your home, then the equity in your home will be the upper limit of what you can borrow. The equity in your home is the value of it that you own outright – if you have taken out a mortgage to pay for your home, the equity is the percentage of the home’s value that the mortgage is not paying for. You gain equity if your home increases in value and as you continue to pay back your mortgage. Here at Secured Loans, we allow you to borrow up to £25 million, depending on the equity in the asset of your choosing.
How to Improve Your Chances of Getting a Loan When Self Employed
As a self-employed person, there are plenty of steps that you can take in order to increase your eligibility for obtaining a loan. The most important thing that you can do is to accurately record your financials. Even if you are the only person who is operating in your business, it is important to have a record of your business transactions and incomes that are separate from your personal accounts.
It is important that your incomings can be relied upon for you to make your monthly repayments when you are granted your loan. If you are not able to make your repayments, you run the risk of your asset that is used as collateral being repossessed. It is in the interest of both you and your loan provider that this does not happen; a loans vendor will only approve you for their product if they can see evidence that you will be able to repay them. For this reason, you must keep your accounts in a state of organisation and transparency.
You will also increase your chances of being given a loan if you can provide your lender with details of your business, such as your business address and phone number. Since you are your own employer, you will not need to provide details of an employer or boss.
With a secured loan, your credit history and current credit score should not have an effect on your eligibility; your asset accounts for any risk involved in lending to you.
Things to Consider:
- Your monthly incomings – are they regular?
- How you will use the loan
- How much do you need to borrow?
- Other essential outgoing payments
There is no reason why self-employed people should not have access to loans products; being self-employed just means that there are different administrative steps that go into applying for a loan than for those that have clear monthly salaries from an employer. If you are able to ensure that your financials are as clear as possible and that you will be able to make your monthly repayments, then there is no reason why a secured loan cannot be the product for you.