The freelancing gig economy is growing faster than ever, and all for good reasons. There are many perks to freelancing. You are self-employed, which means you decide when and where to work and what sort of projects to work on. You also have complete control over your own financial decisions. There is lots of flexibility, but when it comes to securing a business loan, it becomes a little difficult. Don’t let it discourage you! It may be difficult but it’s not impossible.
Let’s take a look at the reasons why it’s difficult for freelancers to secure a business loan and the available business loan options for freelancers.
Why is it difficult for freelancers to secure a business loan?
The most important thing to know as a freelancer is that your business and personal taxes are filed together. Sure, this saves you a lot of time when filing your business taxes, but lenders see it as a big risk. From their view, when you file your personal and business taxes together, it means that there is no legal separation between both of your finances.
Since you’re a sole proprietor as a freelancer, you have no protection against liabilities. This means you will be held personally accountable for any business debts or losses. Both traditional and alternative lenders measure your personal creditworthiness and your ability to pay the loan. They prefer to approve loans to more established businesses.
Additionally, you’re a one-person army. So if you face any personal emergency for an extended about of time, your business might fail quickly. That’s a big risk that most lenders are not willing to take.
Funding options for freelancers
As mentioned above, there are still business loan options for freelancers. Before diving into it, make sure you approach getting a loan the same way that you approached becoming a freelancer; with caution. To increase your chances of being approved, here’s what you need to know to get started:
Choose a private lender
Private lenders are much easier to work with compared to traditional lending institutions. They are a fantastic alternative source for funding because they are usually smaller organizations and are more willing to work with you as a potential borrower to find the best funding option.
If you decide to go with a private lender, you will have the chance to speak with someone in person and explain your situation. You’ll be able to prove your income, and explain how you plan on keeping your income steady in the coming months. With private lenders, you can expect professionalism, a quick and easy application process, and a one-on-one personal experience that will benefit you in the long run.
Choose a secured loan
As a freelancer, it’s almost impossible to get an unsecured loan from a traditional lending organization. This is because all banks like security. Your loan must have some collateral so in the event you default, your lender will have something to cover the amount you owe them. So consider secured loans if you’re willing to involve personal assets as collateral. But if your mind is set on an unsecured loan, choosing a private lender is the best option.
Get a co-signer
If you are still getting rejected for a loan, it’s time to consider getting a co-signer. You may not be comfortable with asking family and friends to help you out with finances, but your chances of getting the funding you need increases significantly once you get a co-signer.
Ultimately, and lucky for you, there are solid funding options for freelancers out there. Whether you decide to go with a private lender, or a secured or unsecured loan, make sure to do your due diligence. Funding is out there, you just have to be willing to do your research, evaluate all your options, speak with an advisor and apply for the right type of loan.