If you’re a business owner or contractor, getting a personal loan may require a more complicated process than if you were a W-2 employee. That’s because you’re less likely to have a pay stub or W-2 form—both straightforward documents that lenders use to prove income.
But just because the process is more complicated doesn’t mean it’s harder to get a loan with favorable terms. Here’s what you need to know about getting a personal loan on self-employed income and the best options to consider.
What you need to prove your income
“The foundation of getting a personal loan—whether you own a business or not—is your ability to repay what you borrow,” says Megan Hanna, a senior financial analyst at FitSmallBusiness.com.
“How lenders document your repayment ability varies not only by employment status but, more significantly, by the reason you need the funds. Lenders will also consider what (if any) collateral you have to offer and your loan size.”
As a result, the less risk the lender considers you to be, the less documentation you’ll need to provide to prove your income and ability to repay the debt.
That said, proving your income can be tricky as a business owner or contractor since the requirements may vary from one lender to the next.
Here are some items you may need to provide to show how much you make:
- Bank statements. You’ll typically need to provide bank statements for your business and personal bank accounts from the last three months.
- Financial statements. Some lenders may want to look at your profit-and-loss statement and your balance sheet.
- Tax returns. You’ll likely need to provide returns from the last two years.
- Lease agreements. If your income is primarily from renters, you’ll probably need to provide lease agreements to show how much you’re bringing in. You might also need to show your expenses so the lender can see what you actually take home.
- Business documents. Some lenders may require proof that you’re operating your business legally. This can include a state registration, business license, or other related documents.
If you just started working for yourself, it may be tough to get enough documentation to prove your income. What’s more, you may be expecting a significant increase in your income over the next year or two, but can’t use that in your application.
“If your annual self-employment fluctuates from year-to-year, you may still be able to get approved for a personal loan,” says Hanna.
To improve your chances of getting approved, Hanna recommends the following:
- Avoid a high level of leverage.
- Maintain a lot of liquidity.
- Keep good financial records.
- Develop solid projections.
- Establish excellent personal credit.
It can also help to get a loan with a cosigner or collateral. Here’s what you need to know about each.
A cosigner, also sometimes called a co-applicant, is someone who applies for the loan with you.
Lenders that allow cosigners will consider both your and your cosigner’s income and creditworthiness. So if your income is tough to prove or you don’t have enough to qualify alone, a cosigner can help.
That said, he or she will also be equally responsible for paying back the debt. So if you default, it won’t just hurt your credit history—it could damage your cosigner’s credit history, as well.
As such, it’s important to have a good relationship with your cosigner and avoid breaking their trust.
Some lenders offer secured personal loans that enable you to put up collateral for your debt. The collateral is typically cash in a savings account, but it could also be a physical asset like a vehicle.
The 5 best personal loans for self-employed people
If you’re considering a personal loan, online lenders may be a better option than traditional banks. It’s not because traditional banks won’t lend to self-employed people. Rather, online lenders may have fewer requirements when it comes to income documentation.
If you have good or excellent credit and all the right documentation, SoFi can provide you with a low fixed interest rate. The lender offers high loan amounts, generous repayment terms, and no fees whatsoever.
The lender’s APR range is one of the lowest among personal loan companies. SoFi loans are available in almost every state, making it possible for most U.S. residents to be eligible based on residency.
Once you’re a member, you’ll also get access to several other benefits, including unemployment protection, lower rates on future loans, career coaching, and more.
Check out our SoFi review page to learn more about what the lender has to offer.
Like SoFi, Earnest offers relatively low-interest personal loans to borrowers with good or excellent credit. The lender doesn’t charge an origination fee, nor any other fees for that matter.
You’ll also get favorable repayment terms based on your loan amount and you can borrow a lot, albeit not as much as with SoFi. Earnest isn’t as widely available as SoFi, although you can get a loan through the lender in most U.S. states.
Read more highlights about Earnest on our review page of the lender.
LendingClub offers personal loans to people with fair credit or better.
But what sets the lender apart from some of the others on our list is that it allows cosigners. So if you’re having a hard time proving your income—or your income or credit isn’t in great shape—you can still get approved with a good co-applicant.
LendingClub’s interest rates aren’t as favorable as SoFi’s and Earnest’s, but they’re still competitive for people with fair and good credit.
The lender offers good repayment terms and small-dollar loans as well as large loan amounts. There is, however, an origination fee, which the lender deducts from your loan balance.
If you’re considering LendingClub, read SuperMoney’s lender review page for more details.
If you’re looking for a loan to consolidate high-interest credit card debt, Payoff may be your best bet. The Payoff Loan is designed specifically to pay off credit card debt, and it’s available for people with good and excellent credit.
Interest rates are relatively low, especially compared to credit cards. And while there is an origination fee on some loans, you won’t have to worry about other fees. You’ll get at least a couple of years to pay off your balance.
Read SuperMoney’s Payoff review page to get more highlights about the lender’s offering.
5. OneMain Financial
OneMain Financial is another lender that allows you to apply with a co-applicant, giving you more room to get approved.
The lender doesn’t have a minimum credit score requirement, which could work in your favor if your credit isn’t in good shape. It also has relatively low-income requirements.
While the lender’s interest rates are somewhat higher than the other lenders we’ve listed, they’re still much better than most bad-credit personal loans. Keep in mind, though, that the lender charges an origination fee on some of its loans.
Learn more about OneMain Financial and its personal loans on our OneMain in-depth review.
The bottom line
Getting approved for a personal loan as a self-employed business owner or contractor can require some extra legwork.
But with the right documentation or help from someone else, you can get just as good terms as if you received a regular paycheck. Of course, it helps to have a solid credit history, says Hanna.
“Having an excellent personal credit score shows your lender that you’ve paid as agreed in the past, and it’s a sign that you’ll do so again in the future,” she adds. “They’ll see you as a good risk, which goes a long way to getting you approved.”
As you’re considering your options, compare these and other top personal loans to find the best deal for your situation. And if you have special circumstances, reach out to lenders individually to get an idea of what they can do for you.
That includes needing a cosigner or a lender that requires less documentation. It can take time, but it’ll pay off in the long run.
You can expedite the process by seeing what you qualify for in minutes. Find your best loan offer from competing lenders without hurting your credit score.