Getting Credit or Bank Loans When Self Employed
It was not so long ago that those who were making a good living as a self-employed person would find it extremely difficult to obtain credit in the form of a bank loan or some other means of finance. Fortunately today, there has been a positive shift in lenders’ opinions about this.
Changes in PerceptionsThe main catalysts for a change in the perceptions of lenders towards the self-employed were economic cultural changes together with the opening up of new doors created by the communications revolution.
Economically, lenders have become only too aware that very few people have a ‘job for life’ these days. The days of leaving education, getting a job and staying in the same job for, perhaps, 40 or 50 years or so are long gone. Improved career opportunities, unforeseen redundancies and other factors have all meant that most of us will experience quite a number of different employers in our lives and a fair proportion will even change careers.
Therefore, when people only had a limited choice of borrowing options in terms of the handful of high street banks, the banks would always minimise their lending ‘risk’ by opting to only accept loan applications from those who had a steady job.
Nowadays though, the number of jobs which are ‘steady’ is diminishing and, simultaneously, we’ve also witnessed an upsurge in the numbers of people who own their own businesses, who freelance or who work as outsourced contractors. They are often earning good money and represent even less of a risk to some other people who may be working for a prestigious company but are on less wages.
Coupled with the fact that the internet has opened up a whole new world of borrowing possibilities with a vast growing number of very reputable, yet non-traditional, lenders also competing for business, these factors have meant that the self-employed are quite rightly considered at least equally when it comes to considering them for a loan or other form of credit.
What the Self-Employed Person Usually Requires in Order to Obtain a LoanUnlike a person employed by a company who will usually only require a letter from their employer that they earn £XXX amount of pounds per year or some other form of proof like bank statements, the self-employed do have to still usually jump through a couple of extra hoops first to prove their credit-worthiness. This would usually involve producing statements of your earnings for the past three years or an accountant’s letter on your behalf. Some lenders might also look at your track record within the industry in which you operate and, like staff workers, you will also be subject to the relevant credit checks.
Nevertheless, you’re likely to be treated just as favourably as any other kind of worker when it comes to getting a loan or credit these days.
Independent loans brokers are often very useful as they work with a panel of lenders and can quickly find those who specialise in providing loans for self-employed people in addition to the other general lenders who will also consider you for a loan if you work for yourself. These loans will not come with extortionate rates and will be equally as competitive as those obtained by any ‘on-staff’ worker looking for a loan product.
Furthermore, because there are so many lenders out there all looking for business, they will often be able to tailor the loan specific to your needs. For example, it may be that you are a self-employed builder and perhaps winter weather prevents you from earning the same income as throughout the rest of the year.
Tailored LoansCertain lenders can then often tailor that loan so that you can pay more of the loan back when you want to and less when you need to so you won’t find yourself struggling to meet repayments when periods of the year may cause a temporary downturn in your income.
So, if you are self-employed and are successful at your business, you should not have any trouble obtaining the loans and credit agreements you need and you will be simply be judged as any other worker would. If you feel you’re not, take your business elsewhere as there will be many alternative lenders who will be only happy to help you with finance.