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What Are the Different Types of Self-Employment Loans?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 07 September 2016
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One of the concerns of many people who choose to launch a home or small business is how they can go about getting loans when they are not on the payroll of an established business. In fact, the range of self-employment loans is quite broad, although the process of qualifying for those loans may be a little different. Loans for the self-employed include personal loans, quick payday loans, and even mortgages, and can often be obtained from the same lenders who serve individuals who are full and part-time employees of various types of companies.

One of the more common types of self-employment loans are personal loans. Loans of this type are often secured, such as with a car loan. The car itself helps to serve as collateral or security for the loan, which in turn helps to minimize the degree of risk that the lender assumes. As with any personal loan, proof of income must be provided as part of the loan application process. Depending on the policies of the lender, an income statement may be sufficient. Others will require bank statements that verify the individual’s income. In some countries, people who have been self-employed for three or more years may provide copies of their annual tax returns as a means of demonstrating the stability of their income.

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Personal loans may also be unsecured loans, depending on the credit worthiness and income level of the individual. These types of self-employment loans typically require more scrutiny than the secured variety, since lenders are taking on a greater degree of risk by not requiring collateral. Often, this means additional documentation to confirm the level of income as well as the expenses that the individual incurs as part of the operation of his or her freelance or home business. The idea is to make sure that there is enough steady income to justify the loan, and that the prospects of the self-employed individual repaying the loan according to terms is acceptable.

The range of self-employment loans also includes mortgages that are extended to people who operate their own business venture. Like personal loans, there is normally the need to provide enough historical data to convince lenders that the ability to repay the self-employed mortgage according to terms is present. Bank statements, tax returns, profit and loss statements, and income statements are just some of the documents that may be required before the loan application will be seriously considered. Most lenders will provide a listing of documents they require, making it relatively simple to assemble the paperwork and submit it along with the formal application.

Self-employment loans can be obtained for business purposes as well as personal reasons. A self-employed business loan will require much of the same supporting documentation that lenders would require of any business, including a combination of accounting documents along with tax returns that cover a specified number of years. As with the personal loans and mortgages, a business loan for a self-employed applicant will require evaluating all relevant information and determining if the business is likely to continue generating a certain level of income for the duration of the loan, allowing the business to repay the borrowed amount plus interest in a timely manner.

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