Qualifying for a Loan While Self Employed

Posted on April 2nd, 2024

How does one go about qualifying for a loan while being Self Employed? Many honest and hard working individuals have found themselves asking such a question while being in such a position, what can they do when banks it would appear are all programmed to say NO to all such loan applications. Well as hopeless as the position might appear to be, all is not lost. Loans such as these are granted everyday.

Proof of Income

Most banks would ask to see a year or more of pay stubs, however you can easily counter that with years of Tax Returns. The more the merrier. Most lenders would be satisfied with this, banks might be more difficult. Unless you are new in the state or town your bank ought not to have a problem with that. If they refuse then quickly move your account to the nearest bank ASAP.

Spreadsheets and Profit and Loss Statements showing your outline for the next 5 years with yearly breakdowns, while the first year is further broken down into monthly increments. In doing this don’t fail to outline your position in the market, with your potential for growth and the effect an injection of cash would have on your business. You should emphasize what the loan is being requested for; whether it is for business expansion as in hiring of more more employees; replacing older machinery or any other activity that would be for the use of generating greater income of cash.

Credit Score

As a business owner your personal credit score should not be the main item to affect a yes or a no. If you have been in business for any number of years then you should have sought and gotten a Business Credit Score. However, failing that, check your personal score and get busy correcting any negative items that may be found there. If possible, get a credit agency to help in getting negative items of your credit. For Small Business Owners many lenders view negative credit items with disapproval. You ought to clean yours as much as possible before applying for any loans. This is not the time to apply for any Credit Cards either.

This is where working with a Loan Broker becomes important. You do not want to go applying to several different lenders with all of them turning you down. A broker would discreetly contact the lenders he knows and have your loan checked before submitting a formal application. In the final analysis whether it is submitted to an SBA Lender, a Credit Union or a Commercial Bank that operates in a specialized area you will have a better chance of getting that loan approved while working with them.

Loan Qualifications

What are your loan qualifications? What do you have to offer the lender as collateral? This is a question that almost always comes up so it is better to be prepared for it than be surprised by it. Have a business Plan prepared and supply your broker with the Executive Summary from the plan. That way they can answer any questions that the lender raises about your loan. One question that causes the most consideration is sources of income. Be as transparent and honest as possible, there ought to be no surprises at the last hurdle.

There are many lenders that operate online. Some are simply fronts for different banks or Money Funds. Qualifying for a loan is not as difficult as it used to be. Obtaining loans from $1,000.00 to $50.M can all be done online and completed in just a matter of days. You can obtain a loan for an apartment complex, an excavator or any item of business enterprise. You simply need to prepare your documents in the way that makes sense to your lender, show where your income comes from and answer their questions in a clear and sensible manner and the loan is yours.

What is Available

Apart from regular loans you can obtain several different types of funding should your situation warrants it. There are Lines of Credit, which can be of a revolving nature so that interest is only charged on the outstanding amount, and once it is paid you are free to withdraw it all over again. There is Factoring where it is not a loan but rather a purchase of your outstanding debts. What can be obtained is dependent on your situation.

If all else fails then you might consider a co-signer. Whoever that individual might be, they ought to have strong credit and the financial resources to make the payments so that should you fail to make the loan payments they are responsible for doing so in your stead. You might have to offer them shares in the business. This one area that requires a lot of thought as whoever that person might be they will have quite a lot of power in the business. This ought to move you to consider some type of consultation with a legal entity.

Should you require any further information on acquiring a loan in your given situation, simply give me a call. Text or send an email to [email protected] 

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