What Funding Options Are Available To The Self-Employed?

It might be worrying if you are refused a loan because of the fact that you are self-employed. There could be some scenarios when you would need an instant injection of cash. The reason why lenders turn you down is your income instability.

However, there are a few lenders still out there who might be willing to sign off on your application on the condition that your credit score is up to snuff. Unfortunately, it is way easier said than done. Not surprisingly, many borrowers struggle to have a good credit rating. Does that mean self-employed bad credit loans are not an available option?

The lending market is very flexible, offering tailored solutions to borrowers to meet their needs, whether they need it for personal reasons, emergencies, or business purposes. With a little bit of research, you may find self-employed loans despite a bad credit score, but you will end up paying high interest rates. The lending amount will also be restricted.

What funding options can you consider using as a self-employed?

Here are the types of financial help you can consider as a self-employed:

1.  Personal loans

Personal loans, as the name suggests, are loans that do not need to be secured against any assets, so if you fall behind on the payment, your assets are not at stake. However, you cannot escape the other consequences, such as your credit score being brutally hit and your account being sent to collection agencies. You may be sued if you continue to refuse to pay off the debt.

• Personal loans are not meant to be used for any business purposes.
• You can use them for emergencies like car repair and planned expenses such as vacation expenses.
• The repayment length is usually not more than 12 months; however, small emergency loans are paid back in full.
• You can easily budget around them because of fixed instalments.
• They help build your credit score if the number of instalments is more than six.

Although bad credit rating will not always hold you back from getting the nod, make sure you do not borrow more than you need. Calculate how much it will cost you to see if it fits your budget. It is advisable to compare interest rates before lunging at any offer in the first place.

2.  Secured loans

Secured loans have been designed to help you fund large needs of money, for instance, when you need to buy a house. Getting a mortgage, which is secured by your house, is not a cinch as a self-employed because of fluctuations in your income. You must have an up-to-par credit rating and at least a 10% deposit. However, a couple of mortgage lenders may give a nod your application despite a bad credit rating. In that case, the size of the down payment will be much larger. You will have to put down up to 40% deposit. And yet, interest rates will be quite high.

You are at risk of losing your house if you do not keep up with payments. Foreclosure will have very damaging effects on your credit report and your chances of borrowing money down the line.

You should consult a broker if you want to take out a mortgage with a bad credit rating. They will introduce you to a lender who accepts applications from bad credit borrowers as well. Though it might not be difficult for you to get the nod for a mortgage as a self-employed, it is still advisable that you keep your credit score good. Some lenders require more than a 10% deposit despite a stellar credit rating to offset the risk arising from your fluctuating income.

3.  Business loans

As a self-employed person, you may need money to borrow for your business, too. Business loans are more expensive than unsecured loans, and they follow more stringent criteria. In order to get a faster approval, you must have a good credit score. If your credit rating is not up to scratch, you may be asked to secure the loan. Bear in mind you are at risk of losing your valuable personal assets if you make a default.

• Small business loans do not require collateral.
• The repayment period is generally decided based on the loan amount. It can be up tofive years.
• Your lender may ask you to arrange a guarantor with a good credit rating.

Things you should be careful of while using self-employed loans

Self-employed loans are not an ideal option for everyone. Make sure you avoid these loans if:

1.  You are not sure about your repayment capacity

Use an online calculator to know the estimated cost of the loan. Look over your budget to see if it has room to pay it back without compromising on your regular expenses. Make sure you will not struggle with payments even if your business dips.

2.  You do not have to borrow money

While borrowing money, ask yourself if you actually need the money. There is no need to borrow if you can make do with available funds. Do not forget that you will have to pay down a lot of interest on top of what you borrow. It is not a smart decision to take out a loan when it is not absolutely necessary.

3.  Your problem is not temporary

Loans provide you with an instant injection of cash, but they are ideal only for temporary problems. If you feel that you often rely on loans because of a lack of your savings, you should better avoid them. Instead, focus on ways to stash away money.

To wrap up

It can be quite tricky to get a loan approved as a self-employed, but there are a few lenders like FiguralLoans that are willing to consider your application. You will more likely get them approved at lower interest rates.The lender responsibly lends money after a perusal of your repaying capacity.