From financing a wedding to paying off medical bills, there are plenty of reasons why you might need to take out a personal loan. Before approving a loan, most lenders will ask for evidence of your income (which helps prove that you can pay off the loan). For standard, salaried employees, this process is fairly simple — all they have to do is present a paystub. But what if you’re self-employed? How do you prove your financial stability?
The good news is, you can still qualify for personal loans if you’re self-employed — especially if you have good credit. However, you will have to provide more documentation than traditional employees.
What Documents Do I Need To Get A Personal Loan?
If you’re self-employed and looking to get a personal loan, here are some of the documents you might be asked to gather.
- Tax transcripts: Your tax transcript, which is a document from the International Revenue Service (IRS), gives lenders an idea of your overall income and profits.
- Bank statements: To prove that you can pay off your loan, your lender might want to look at bank statements from several different weeks.
- Schedule SE: Also known as a self-employment tax form, this document establishes your credibility by showing how much you have paid in taxes to programs like Medicare and Social Security.
- Schedule C: If you have a sole proprietorship, then you will need to present this document to show your cash flow. A sole proprietorship is a single-person business in which you earn an income separate from regular household expenses — you also don’t have to register the business with your state.
- 1099-MISC: This tax form is required for any independent contractor that has made at least $600.
What If My Loan Request Is Rejected?
If your lender is not satisfied with your documentation, your personal loan may be rejected. However, don’t panic yet — you may still be able to get a loan by offering collateral. This type of loan, known as a secured loan, is backed by property or an item of value (such as a car). This helps reduce the financial risk for the lender.
Another method you could try is finding someone to co-sign the loan with you. A co-signer is someone who is also responsible for repaying the loan — this option is best for people that have poor credit or may struggle to pay off the loan on their own.
What Do I Do Now?
Now that you understand how personal loans work for the self-employed, it’s time to get a loan yourself! But before you go down to your bank and put in a request, consider the following:
- Your budget
- Your loan options
Because you don’t have a set salary coming in every week, it’s important to look over your budget and determine how much money you can afford in monthly loan repayments. You should also consider loan options from multiple sources, including banks, credit unions and general lenders. Taking the time to find a loan with the best terms and fees will only pay off in the long run!