7 Personal Loans To Consider When You're Self-Employed

Being self-employed doesn’t mean you can’t get a personal loan. In fact, most lenders offer personal loans to self-employed individuals. Credit score and income requirements are, generally, no different than if you were salaried. But because your income stream may not be considered as reliable as an employee’s, you’ll likely have to provide more paperwork to prove that it is. Or, you might need to consider a secured loan or a joint application to qualify for a larger loan amount or a lower rate.

Best self-employed loans

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To apply, self-employed borrowers must provide their two most recent tax returns.

SoFi

To potentially qualify for a loan, self-employed borrowers will generally need to show proof of consistent income through tax returns or bank statements.

In addition to income, SoFi will consider your credit score, and education level.

Best Egg

Best Egg works with borrowers who have a variety of employment statuses, such as salaried, self-employed, or retired.

Be sure to check with Best Egg to see what documentation you’ll need to provide.

Upstart

If you’re self-employed, you’ll need to submit the previous year’s full tax return plus proof of recent income in the form of a digitally deposited check image or a business invoice.

LendingClub

If you’re self-employed, you’ll need to submit a recent tax return or other forms like a 1099 as proof of income.

Happy Money

Self-employed borrowers will need to submit the first two pages of IRS Form 1040 along with the first two pages of either the Schedule C or K1 form.

Avant

If you're self-employed, Avant requires that you submit your two most recent years’ complete, official tax documentation.

What does self-employed mean?

“Self-employed” means that your pay may be sporadic, ebbing and flowing based on the performance of your business. You don’t receive a regular paycheck or a W-2 wage and tax statement from an employer each year. Instead, you might receive a 1099-K for goods sold or services rendered or a 1099-NEC for services performed as an independent contractor. You’re also required to file Form 1040 Schedule C to account for your business gains and losses.

In the eyes of potential lenders, you don’t have a regular or reliable paycheck. As such, if you’re applying for a loan as a self-employed individual, you’ll likely be required to provide two years' worth of tax returns and possibly other documentation supporting the stability and amount of your income.

How does a self-employed loan work?

A self-employed loan works similarly to other loan types. However, here we’re talking about personal loans for self-employed individuals. If you’re seeking a small business loan or a startup business loan through the SBA, you’ll generally apply through an SBA-approved intermediary (for a microloan) or a lender that offers SBA-backed loans. You’ll need to meet eligibility requirements based on the size of your business. 

Personal loans for self-employed individuals work the same as a personal loan to anyone else. If approved, you generally receive the loan in a lump sum deposited into your bank account (or possibly sent to your creditors if you’re using the loan to consolidate debt). Then, you pay back the loan in monthly installments for a period of years, often ranging from two to seven. Loan amounts are available from $1,000 to $50,000 or more.

Personal loan rates typically range from 6.25% APR to 36% APR and are based, largely, on your credit score and available income. The loan’s repayment term, loan amount, and loan purpose also figure into the APR you can qualify for. Similarly, the loan amount you’re approved for is influenced by your credit score, the repayment term, and your income.

Why getting a personal loan while self-employed is challenging

Unlike employed borrowers, you may need to jump through a few additional hoops to get a loan if you’re self-employed or wait longer to be approved. Here’s why and what to expect:

• Inconsistent income: Banks, credit unions, and online lenders may see self-employed workers as riskier to do business with if their income is sporadic. Self-employment often means fluctuating income rather than a stable, predictable salary. Lenders prefer the latter.
• Proof of income: You may need to provide more documentation to prove your income. Lenders often require two years' worth of tax returns and possibly other documentation supporting the stability and amount of your income. This is because self-employed individuals don't receive standard paychecks or W-2 forms like salaried employees.
• Manual underwriting: Lenders may need to send self-employed loan applications through a manual underwriting process as opposed to an automatic or AI-driven one. This can increase the time it takes to get a loan approved. Manual underwriting involves a more in-depth review of your financial situation, which can increase the time between application and funding.
• Perceived higher risk: Aside from a potentially sporadic income, if a lender perceives your industry as high-risk, it could be more difficult to get approved for a loan or result in less favorable loan terms.

Other ways to prove income

1099 forms

As a freelancer or independent contractor, if you provide clients with more than $600 in services annually, they generally must provide you with a 1099 form. This could be an IRS 1099-NEC or a 1099-K if you get paid through an app, a ride-hailing platform, a ticket resale site, a craft marketplace, or even a crowdfunding site. You may receive several 1099 forms if you have multiple clients.

Bank statements

Similarly, lenders may ask to see bank statements going back three months or much longer. They're looking for consistency and cash flow to verify your ability to repay.

Profit & loss (P&L) statements

A lender may require or accept profit and loss statements for a self-employed loan. You can use the information from Schedule C of your tax return. These records help establish your income and provide an overview of your business finances. You can find examples of how to write your own P&L statement online at websites such as Accion Opportunity Fund.

How to compare personal loans as a self-employed borrower

If you’re self-employed, there are a couple of items to pay extra attention to as you compare personal loans. First, look for lenders that offer personal loans for self-employed people, such as LendingClub. “We don't have a special niche for freelancers, gig workers, etc.,” says Alia Dudum, a spokesperson for LendingClub. “We treat all applicants the same in terms of decisioning.”

Reprise, however, is an example of a lender that doesn’t accept self-employment income as a primary income source. You can often find a lender’s requirements for income in its FAQ.

Second, find lenders that let you prequalify with a soft credit pull before you apply. This all-important step can help you narrow down lenders and get estimates of interest rates and monthly payments — all without going through a full application and a hard credit pull. Note that most lenders conduct a hard credit check when you submit a full application, which could ding your score for up to one year.

Once you’ve prequalified, compare loan quotes based on these factors:

APR

A loan's annual percentage rate (APR) represents the annual cost to borrow money, inclusive of the interest rate and any upfront fees, such as an origination fee. This is the rate you’ll see once you prequalify and is a good measure by which to compare loans and lenders.

Related: APR vs. Interest Rate on a Personal Loan: What To Know

Loan amounts

Make sure the lender offers the amount you need. Loan amounts range from a few hundred to $100,000 or more, but most lenders offer between $2,000 and $50,000. What you'll qualify for depends on your credit score, income, debt-to-income ratio (DTI), and other factors like loan purpose. It's common for lenders to reserve loans of $100,000 or more for expenses such as home improvement projects.

Repayment terms and monthly payments

Personal loans typically need to be repaid in two to five years, although some lenders offer seven-year terms. The length of your repayment term can make a big difference in the size of your monthly payment and the loan's overall cost. 

Consider this example of a $20,000 loan at 20% interest with a five-year term or a seven-year term:

While the seven-year term has a lower monthly payment, you'd pay over $5,000 more in interest over the course of the loan.

If you're concerned with your monthly cash flow or can't afford a higher monthly payment, a longer repayment term with a lower monthly payment might be the better option. If reducing interest costs over the life of your loan is your primary goal, a shorter-term repayment option might be preferable.

Pros and cons of a personal loan

How to get a personal loan when you're self-employed

1. Prequalify with multiple lenders to get an idea of potential interest rates, repayment terms, and loan amounts.
2. Confirm potential lenders offer the loan amount and repayment term you need.
3. Ensure your loan purpose is allowed by lenders you’re considering.
4. Compare APRs between lender quotes and whether you’re likely to be charged an origination fee.
5. Gather two years of tax returns and other documentation supporting your income.
6. Apply.
7. Provide any additional documentation requested.
8. If approved, review the loan agreement and other documents.
9. Sign the loan’s terms, including the monthly payment, APR, the amount of any origination fee, the payment schedule, and the loan amount, if they are agreeable.
10. Await funding.

If you think your credit might be a problem, pay off outstanding debts to reduce your debt-to-income ratio and check your credit report for errors (free weekly reports are available at AnnualCreditReport.com). You can check your credit score for free using Credible’s credit-monitoring tool with free debt tracking and no impact on your credit.

What are average personal loan interest rates?

Personal loan rates generally range from around 7% to 36% APR, depending on your credit score, income, the frequency and reliability of that income, and other factors. Looking at average rates received by real borrowers and aggregated by credit score tiers can give you a better sense of interest rates you might qualify for. 

Here are average APRs by credit score, along with average loan amounts and annual incomes, based on Credible marketplace data over the past 12 months. The chart also includes prequalification rates by credit score. 

Keep in mind that the data in this chart applies to all loans, regardless of employment status. The rate you qualify for could be higher than someone with a similar credit score if your only income source is through self-employment, especially if you've not been self-employed for long or your income is infrequent. 

You can use a personal loan calculator to simulate different monthly payments and repayment terms, based on the rate you think you might qualify for. To get a better idea, take a few minutes to go through the prequalification process. It won't hurt your credit, but it can give you a customized rate quote. 

Alternatives to personal loans

If a personal loan doesn’t quite fit the bill, choose from a variety of personal loan alternatives.

SBA loans

The SBA doesn't make loans, but guarantees loans issued by partner banks, credit unions, and community-based nonprofit partners. Funding can range from under $50,000 to $5.5 million, depending on the specific loan program. SBA loans generally offer interest rates much lower than personal loans; however, you may need to put up collateral to qualify for the lowest rates. 

Note that your business must meet certain eligibility requirements, including creditworthiness.

Revenue advances

A revenue advance provides money as an advance on your business's future sales. Revenue advances are available from lenders such as Fora Financial and payment platforms such as PayPal through its Working Capital business loan program. Advance funds and fees are typically repaid as a percentage of your sales. Although revenue advances can be a quick way to get cash without a credit check, remember that you're effectively pledging future sales as collateral. Also, revenue advances are exempt from interest rate caps, which could make this form of borrowing expensive.

Invoice factoring

If customers have yet to pay you for the goods and services they bought from you, you might be able to sell the unpaid invoices to an invoice factoring company for a percentage of their value (invoice factoring). The factoring company assumes responsibility for collecting the outstanding bills, and your customers pay the factoring company directly.

Invoice financing

With invoice financing, you borrow against unpaid invoices, using them as collateral, instead of selling them. If your loan is approved, you receive an advance based on the estimated amount of your invoices. When your customers repay you, you then repay the financing company.

Home equity loan or home equity line of credit

If you own your home and have at least 15% to 20% equity, you might be able to access your home's equity through a home equity loan or home equity line of credit (HELOC). These loans may have lower interest rates and higher loan amounts than personal loans and other forms of borrowing, but you risk losing your house if you can't make your payments.

Family loans

Family loans fall into one of two categories. “Gift loans” of up to $10,000 generally aren't subject to interest. However, the IRS requires that family loans of more than $10,000 have an interest rate in line with IRS Applicable Federal Rate (AFR) tables. The family member who loaned you the money may have to report the payments as income. 

Methodology

Credible evaluated 32 lenders across 1,216 data points to find the best loans for self-employed workers. We chose the best lenders based on the following weighted categories and removed lenders that do not allow self-employed income as a primary source:

• Rates and fees: 18.75%
• Eligibility and options for bad and no credit: 17.5%
• Availability: 12.5%
• Loan amounts and terms: 10%
• Customer satisfaction: 10%
• Customer service: 10%
• Efficiency and fund delivery: 10%
• Discounts: 7.5%
• Credible proprietary data: 3.75%

Credible’s team of experts gathered information from each lender’s website and from our partners directly. We also considered each of our partner lenders’ statistics over a 12-month period — including average funding times, average credit scores for approved applicants, and average rates. Each data point is verified by a senior editor to make sure it’s accurate at the time of publication. Learn more about how Credible rates lenders by exploring our personal loans lender rating methodology.