Loans for gig workers: A complete guide

The gig economy comes with a lot of advantages. You can be your own boss, choose when and how you work, and even earn more than you would with a regular job. In fact, it’s sometimes easy to forget there are downsides — until it comes time to apply for a loan, that is. 

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Lenders generally don’t offer funding as freely to people who work for themselves. Gig workers often have more variable and inconsistent incomes compared to people who work for an employer, and that makes getting approved for a loan difficult — but not impossible. We’ll show you how to overcome this common hurdle. 

Special considerations for gig workers

Different types of loans come with separate requirements, and those qualifications also vary by each individual lender. One thing’s for certain, though: most lenders will scrutinize your application extra closely. You may need to provide additional documents, such as your tax returns going back for two years or more. Here’s what lenders are looking for:

• Income patterns: It’s fine if your income isn’t consistent as long as you earn enough to easily afford your payments. That’s especially true if you can demonstrate a multi-year history of earnings. 
• Income after deductions: Many business owners earn much less than they gross after taking business deductions into account. This is especially common for gig work with upfront costs, such as Uber or Lyft drivers with high transportation costs.
• Proof of income: Self-employed individuals are often able to show documents like 1099s and tax returns as proof of income. If you’re paid under the table, however, you may not be able to prove your income to a lender’s satisfaction. 
• Business risk: Running a business is inherently riskier than working for an employer, even if you’ve been doing it for a while. Lenders typically look for applicants with a long and successful track record of income, but you could still go out of business at any time.

Loans for gig workers

Your chances of getting approved for a loan go up if you can demonstrate a high and consistent income over several years. If you don’t meet those criteria, you may still get approved for some types of loans, but you might need to accept more unfavorable loan terms or get more creative with your financing options. 

Personal loan

Personal loans are common types of unsecured loans, meaning they’re not tied to any collateral that guarantees repayment for your lender. Unsecured loan options typically have higher credit score and income requirements, but given the widespread abundance of lenders offering these financing options, it’s easy to find personal loans for self-employed applicants. Try checking with credit unions first, which may be more open to working with folks from non-traditional employment situations. 

Cash advance

If you only need a small amount of money to hold you over until the next paycheck, consider getting a cash advance. It’s possible to get a cash advance from many different sources, such as financial apps, credit cards, or your bank. Credit cards typically charge a high fee and increased interest rate for cash advances. 

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Financial apps are often free, aside from extra charges for instant cash advances (versus waiting a few days for a slower ACH transfer) and late fees. These products don’t rely on traditional credit as much as computer-based analyses of your bank account history, as well as your history in repaying other cash advances. Thus, you’re typically limited to a small amount to start (often $20 or less), with the potential to work up to a few hundred dollars over time.  

Payday alternative loan

If you use payday loans frequently, consider joining a credit union that offers payday alternative loans, or PALs. You’ll typically need to be a member of the credit union for at least a month before you’re eligible to apply for one of these loans, which typically offers funding up to $1,000. 

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These short-term loans are structured with more affordable rates and repayment schedules so that you can avoid the debt trap that payday loans often come with. If you repay the funds according to schedule, they could also help you build a better credit score because those payments will be reported to the credit bureaus, unlike with regular payday loans. 

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Working with a credit union also has other advantages, especially for gig workers. These nonprofit institutions are more focused on helping community members than on profits, so you may qualify for better financing options in the future on other loan products, too. 

Home equity loan/line of credit (HELOC)

If you’re also a homeowner, you may be able to use a home equity loan or HELOC for larger expenses like renovating your home office or consolidating high-interest debts. Lenders are often more willing to approve loans backed by some sort of collateral — in this case, your home. It’s important to keep in mind that if you default on the loan, your lender can foreclose on your home, an especially salient point for gig workers. 

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Home equity loans offer the benefit of a lump sum of funds if you’re looking to use them for a specific project. A HELOC offers other advantages for gig workers, such as the flexibility to borrow funds without having to reapply for another loan and smaller interest-only payments during the initial draw phase. 

Home equity investment (HEI)

Home equity investments also allow you to draw against your home equity, but without having to make any monthly payments — something that could be especially important for many gig workers. Not having to make monthly payments frees up a huge chunk of most people’s income, allowing their bank account to grow — which they can in turn reinvest back into their business. HEIs have no income requirements, which makes them a wonderful fit for small business owners who optimize their deductions. 

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Point offers an HEI with repayment terms stretching out to 30 years, when you’ll repay the funds plus a share of your home’s future equity. Many homeowners repay their HEI when they sell their home, but you can pay back an HEI any time with no prepayment penalties – which you may wish to do if your business income takes off in the future. 

Small business loan

If you’re looking for funding to turn your side gig into a fully-fledged business, try looking into a small business loan. The Small Business Administration (SBA) partners with lenders all across the country to back loans made to business owners at affordable interest rates. Most lenders still require at least two years’ time in business to get approved, but the SBA Microloan program is more flexible. 

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Many online and alternative lenders offer personalized loans for startups and new business owners, too, although these are often more expensive. Make sure you weigh the pros and cons carefully, especially with an eye toward how your payments could impact your business’s profitability. 

Final thoughts

If you’re self-employed, it’s especially important to have a bigger cash cushion than someone with a stable income. Experts commonly recommend saving between three and six month’s worth of expenses in an emergency fund, with gig workers and other small business owners landing on the longer side of that spectrum. 

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However, if your savings fall short of your needs, and you are seeking out loans for gig workers, Home Equity Investment from Point may be the right choice for you. 

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