There could be many reasons why you would want to get a loan while self-employed. Maybe you could be applying for a mortgage, or just trying to get a loan for your business. When anyone applies for a loan, most agencies look at your current employment. Self-employment may not look as good to lenders as having a steady job, but if you plan ahead and prepare for the approval process, your odds will go up.
Below are some tips to be used for getting a personal loan, or business loans when you work for yourself.
5 Tips to Prepare for Loan Approval while Self Employed
1. Work on your credit score.
Anyone trying to get self employed loans, needs to keep their credit score high. Your business credit score needs to be good too. Both scores are looked at by different factors, so be sure to focus on the correct one based on the loan you are trying to get. You will want to start working on your credit score a few months prior to applying for a loan, and you also want to have the most time possible to maximize your credit score.
2. Pay off other debt that you may have.
Regardless which type of loan you are trying to get, pay off business debt, and personal debt. You will want to free up as much money as possible for payments on the new loan. Lenders do not like seeing a lot of outstanding debt If you cannot pay off all of your debts, then pay them down as much as possible.
3.Wait until you have been in business for two years.
The reason is that many small businesses fail during their first two years. Forty percent of small businesses do not survive past the two-year mark. Because of this, many lenders will not approve loans unless they have been in business at least two years and show profit.
4. Build up cash reserves.
Building up cash reserves are especially important if you have been in business for less than two years and still want to try for a loan. Having a significant cash reserves will allow lenders to see that you will be able to make payments on the loan, even if your business starts to fall off a bit. This gives them more of a security blanket than anything else. So, in general, it’s a good idea for you to have cash reserves as backup in case of any issues down the road.
5. Save up a large down payment.
Having a large down payment not only shows that you are worthy of a credit offer, but it will also show that you are serious about the purchase you want to make with it.
The last thing to consider when applying for a loan is the lender. Choosing the right lender for your business loan when you are self-employed may come down to going with smaller banks and lending institutions. Keeping the planning process on key and preparing for the loan application will make all the difference.