Getting approved for a loan is easier when you have a full-time job with a decent monthly income. However, getting a loan is much more challenging when you are self-employed and have no fixed monthly salary. But there are many safe and secure options to get a self-employed 1099 loan. But before you dive into the process of applying for a loan, it’s essential to know what lenders may look for or expect from you as a self-employed person to qualify for a loan.
This guide will break down what loan options are available for self-employed people and what documents you may be required to produce.
What Do Lenders Look For in a Self-Employed Person?
To prepare you for the tedious process, here are some things a lender will check to decide whether to approve your loan request:
- Stable income
The most important thing is how stable your monthly earnings are. The lenders don’t expect you to have high revenues. But they expect you to earn enough monthly to pay off your bills, business expenses, and monthly repayments. If they feel your monthly earnings are not enough for all of this, then your request could get rejected.
- Nature of your work
Lenders may find it more reassuring if you work in the same industry for a long time. This would show them that your clients are stable and you won’t have trouble making enough each month to pay off the loan. On the other hand, if your work is seasonal or you have been in the industry for a short while, lenders may not fully trust you to pay off your loan in time.
- The revenue curve
The lenders will probably scrutinise your previous monthly earnings to see if you are at least earning consistently. They want to see an upward curve, or at least a stable one, while they look at your monthly earnings. Your loan application will get rejected if they feel your income is random or see a downward slope.
Types of Loans for Self-Employed Workers
If you are a self-employed worker or 1099 worker, here are some safe loan options that you should look into:
Small Business Administration Loans
SBA Micro-loans are available only through SBA-approved community lenders. Backed by the SBA and cater to business owners who struggle to qualify for funding otherwise. The highest amount you will get is $50,000, which comes with a six-year term, and can be used for almost all business-related expenses. They, however, can’t be used to pay off debts or estate acquisitions.
It is considered a controversial option where you must sell a portion of your business. However, this is suitable for new companies, where they are not expected to earn significant revenue in the first few years.
If your credit score isn’t great, you can try looking into a co-signed loan. You can ask a person with a good credit score to be your co-signer. This reassures the lenders that the co-signer can still pay off your debt even if you default. But be advised to choose your partner carefully since they have a big responsibility.
Payday loans are short-term finances that offer quick cash options. However, the amount is usually small and requires you to pay off the loan before your next payday. So, you have 3-4 weeks to pay off the loan.
Ultimately, there are numerous secure ways to get funding for self-employed workers. Research a little more to see which lenders will offer you better terms, but you should be able to find a few suitable options for your financial situation. We hope this helps you figure things out.