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Loans for self-employed individuals

Discover essential tips and best options for securing loans as a self-employed individual. Learn how to navigate your options and find the right lenders for your needs.

Siarra Ortiz
June 17, 2024

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Being self-employed comes with the freedom to chart your own course and choose your own hours, but it can also come with unique financial challenges. When you have nontraditional income, it can take additional effort to secure financing. However, being self-employed shouldn't—and doesn't have to—limit your ability to borrow. 

The good news is that loans for self-employed professionals are not uncommon, even if they can be a bit harder to find. You could have many options available—and with due research and preparation, you can be well on your way to funding. 

Challenges for self-employed borrowers

Understanding what hurdles you may face is critical when weighing your options. A few roadblocks to consider are: 

  • Proof of income: Unlike salaried employees who can provide pay stubs or W-2 forms, lenders will require more documents to track and verify your income sources. Since traditional lenders often look for stability, you may need to work harder to showcase your eligibility. Depending on how you set up your self-employed business and write off expenses, your documented income may be lower than some lenders prefer. 
  • Income fluctuation: A lack of steady income can raise concerns. If your income varies or experiences seasonal fluctuations, it may impact a lender's willingness to work with you.
  • Stricter lending requirements: Lending terms and requirements can also differ for self-employed individuals. Financial institutions may require more stringent thresholds and a more thorough application process to qualify. 
  • Higher borrowing cost: Non-traditional workers and business owners are perceived as riskier borrowers. This can ultimately result in higher fees and interest rates to offset the risk to lenders. 

When you know the expectations of lenders, you can make more informed choices. 

All-purpose loans for self-employed borrowers

Personal loan

Personal loans are versatile, straightforward financing options that give you cash for various expenses. Unlike specific-purpose loans such as mortgages or auto loans, personal loans can be used to accomplish anything you need to—no limitations.

Applying for a personal loan is often the easiest approach to borrowing as it's heavily based on your credit score and income at the time—plus, you can get funded in 1-5 business days. While having the best credit profile will help you secure the best loans, there are plenty of loan options for bad credit borrowers

Alternatively, if you have decent credit but are highly in debt, you can still explore loans for high debt-to-income ratio borrowers

  • Loan amount: $1,000 to $100,000
  • Requirements: ary lender to lender
  • Rate:‍‍ 7% to 36%
  • Repayment terms: 1 to 7 years
  • Considerations: A personal loan can create a vicious debt cycle without a proper repayment plan. 

Reputable lenders for the self-employed include Upstart, Upgrade, Lending Club, Avant, and Best Egg

HELOC/Home equity loan

If you've built up equity in your home, you deserve to have it work for you. Home equity loans and home equity lines of credit (HELOC) are two of the most popular ways to tap into your home's wealth to accomplish what you need. 

A HELOC allows you to draw funds as you need up to a set limit during the draw period, 5 to 10 years. You'll be on the hook for interest-only payments during this time. Once the draw period ends and repayment begins, you'll be responsible for paying back the borrowed amount plus interest over a 10 to 20-year repayment term. Rates are variable, which means your monthly payments can fluctuate. 

Check out a HELOC qualification calculator here

On the other hand, a home equity loan provides funds upfront, which is repaid over a fixed term with fixed monthly payments.

Because these loans are secured by your property, you can expect competitive rates. Qualification requirements are similar across the two products, and you can use the funds as you need. While both have income requirements, it’s certainly possible to secure a HELOC or home equity loan as a self-employed individual

  • Loan amount: $20,000 to $400,000
  • Requirements: Sufficient equity, 620 credit score or higher, a debt-to-income ratio of 43% or lower
  • Rate:‍‍ 9% to 12%
  • Repayment terms: 5 to 30 years
  • Considerations: Since your home is used as collateral, you risk foreclosure should you default on the loan. 

Home equity investment 

A home equity investment (HEI) is not a traditional loan—but definitely worth consideration for self-employed borrowers, since there are no income requirements. Rather than income, your eligibility is tied to your home equity and having a credit score above 500. 

An HEI offers a single lump sum payout in exchange for a share of your home’s future appreciation. You can use the funds as you wish, there are no restrictions. Additionally, there are no monthly payments—instead, you repay your investment anytime during a flexible 30-year term with a home sale, refinance, or other savings. 

  • Amount: Up to $500K
  • Requirements: 500 credit score, sufficient equity, and own a home in an eligible zip code
  • Repayment terms: 30-years; no monthly payments
  • Considerations: HEIs are repaid via a balloon payment, so it's essential to have a buyback plan that aligns with your current and future goals. 

You can prequalify without impacting your credit score or committing to an application, here.

401(k) loan

Have a solo 401(k), individual 401(k), or 401(k) from a past job? A 401(k) loan is a less traditional form of financing—with good reason, as borrowing against your future financial security is risky. 401(k) loans allow you to borrow a portion of your vested retirement balance. You'll repay what you owe—plus interest to yourself—over a five-year term through payments deducted from each paycheck. 

Self-employed individuals, including sole proprietors, corporations, partnerships, and tax-exempt organizations with no employees other than a spouse, can qualify for a 401(k) loan. To get started, visit the online platform you use to review your account. You can generally gauge eligibility requirements and initiate a loan. If you can’t find information about 401(k) loans on the platform,  you may need to contact the plan provider for eligibility or approval. 

Although borrowing from yourself may seem like a no-brainer, it's critical to weigh your short-term needs against the long-term impact. As convenient as a 401(k) loan may be, if you can't make up contributions, you'll fall short come retirement. 

  • Loan amount: The lesser of $50,000 or 50% of the vested account balance.
  • Requirements: An eligible 401(k) account; a sufficient 401(k) balance
  • Rate:‍‍ 9.50% and 10.50%
  • Repayment terms: 5 years
  • Considerations: It's best to consult a financial advisor before jeopardizing any future security. 

Pro tip: If you're facing personal financial distress, it's worth exploring a 401(k) hardship withdrawal. Hardship withdrawals allow you to tap into your nest egg to cover expenses around medical bills, funeral/burial costs, education-related expenditures, costs to prevent foreclosure or eviction, homebuying costs for a primary residence, and damage to your home caused by natural disasters. It's not a loan, and you're not on the hook for repayment. Hardship withdrawals are solely to provide financial relief. However, they bear the same caution as 401(k) loans—it’s highly recommended that you explore all of your options first. 

Business-specific loans for self-employed individuals

SBA 7(a) loan

An SBA 7(a) loan is offered by the U.S. Small Business Administration (SBA) and designed to support small businesses. The loan offers a single lump sum payout, which is great for covering larger investments. Repayment consists of monthly payments over a pre-determined loan term.

The loan can be used for a variety of business expenses, like starting a business or refinancing debt. 

  • Loan amount:  $500 to $5.5M
  • Requirements: U.S. for-profit small business, excellent credit score, strong business financials, and a detailed business plan
  • Rate:‍‍ 3% to 7%; can be fixed or variable
  • Repayment terms: 7 years for working capital loans, 10 years for equipment purchase loans, 25 years for real estate loans
  • Considerations: SBA loans offer competitive interest rates, but the requirements are stringent. Additionally, you'll be responsible for paying a guarantee fee, which varies based on the loan amount and maturity. 

Business line of credit

What if you’re unsure of how much to borrow, or expect to have ongoing expenses? In that case, a business line of credit may be a better solution for your needs. 

A business line of credit is a more flexible type of loan that works similarly to a credit card. You can draw funds as needed up to a set limit, and only pay interest on what you borrow. However, unlike a credit card, you'll need to re-apply for a business line of credit annually. 

  • Loan amount:  $10,000 to $1M
  • Requirements: Strong business plan, annual revenue (varies by lender), and a good personal and business credit score
  • Rate:‍‍ Varies from lender to lender; better than credit cards, higher than SBA loans
  • Repayment terms: Varies from lender to lender; weeks to several years
  • Considerations: It can be challenging to qualify for a business line of credit if you're considered a startup. You'll likely need collateral or a personal guarantee to qualify. 

Reputable lenders include Fundible, SMB Compass, and Bluevine

Term loan

Term loans are basically personal loans for your business. They work just as traditional loans do—you get access to a lump sum of cash and repay over a fixed period with interest.

Unlike a personal loan, you'll typically need some form of collateral, such as a down payment, to advance the loan.

  • Loan amount: $25,000 to several million 
  • Requirements: Collateral, good to excellent credit, sufficient income, strong business health
  • Rate:‍‍ 6% to 13%
  • Repayment terms: Typically 1 year for a short-term loan, 1 to 3 years for an intermediate-term loan, and 3 to 25 years for a long-term loan
  • Considerations: You'll need to offer collateral in addition to a strong business and personal financial profile. 

Term loans are offered by credit unions, banks, and online lenders. Because terms vary so greatly, it's best to shop around and prequalify where possible. 

Before applying 

Securing a loan with no income or as a self-employed individual may require some extra effort, particularly around the approval process. Loan applicants can expect to be on the hook for a great deal of documentation and proving their ability to repay the loan. 


  • Get your financial records in order: Be prepared to provide profit and loss statements, personal and business tax returns, balance sheets, bank account statements, and any other documentation that provides proof of income. 
  • Take stock of your financials: Until you truly evaluate your personal and business health, you don’t know which solution would work best for you. Deep dive into your personal and business credit, income streams, and collateral to understand what options are available. 
  • Shop around: Never accept a first offer! Explore all your options across products and lenders—and prequalify where you can—to get the best terms and rates. 

How to improve your chances of getting approved

Whether you’re worried about qualifying or are just looking for the best deal for your situation, you can improve your opportunities by: 

  • Reviewing and disputing your credit report for errors to increase your credit score.
  • Boosting your income to lower your debt-to-income ratio—or paying off debt to accomplish the same.
  • Securing collateral or saving up for a loan down payment to have more options. 
  • Limiting hard inquiries to protect your credit score. 

Final thoughts

Whether you're looking to invest more in your entrepreneurial venture or need cash to tackle debt or home repairs, having a non-traditional career shouldn't stop you from getting cash. Securing a loan as a self-employed professional may come with unique challenges, but it’s certainly achievable when you understand your options and know the hurdles you may face.

By maintaining thorough financial records, keeping a strong financial profile, and exploring various loan options, you can find financing that suits your needs.

To find out more about what a Home Equity Investment (HEI) can do for you or to discuss your eligibility, consider reaching out to a Point specialist.

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