Applying for a Personal Loan Self-Employed

Augustina Abbey

Applying for a Personal Loan Self-Employed

A personal loan could be an option if you want to consolidate high-interest debts in one monthly payment or finance a large project like a home renovation.

But qualifying for a personal loan can be a bit more complicated if you’re self-employed. That’s because the lender may ask you for documents proving your income during the application process.

For many applicants, that means providing W-2s from their employers. If you’re self-employed, you don’t have W-2s. Still, applying for a personal loan if you’re self-employed is possible.

You’ll just need to have different documents ready to send if the lender asks for them.

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Information to provide when you first apply for a personal loan

A personal loan application typically asks for:

Personal information including your home contact information, birthdate, Social Security number and citizenship status.
Financial information including annual income, income sources, and monthly housing expenses and debt obligations.
Employment information including your employment status, current employer and length of time working there.
Loan request information including the reason for the loan and the amount you seek to borrow.

Some lenders allow you to pre-qualify for a personal loan, meaning you can see what loan terms you’d qualify for without a hard credit inquiry.

That can spare you a temporary ding to your credit scores while you weigh your options.

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How to prove self-employment income

As the lender evaluates your loan application, it will request additional proof of the income information you shared with them. This is where it pays to be prepared, especially if you’re self-employed.

Have these documents on hand to prove your self-employment income:

Federal tax returns for the past two years, including all schedules
1099s for the past two years.
Bank statements.

These documents are also helpful if your income comes from more than one source, like contract or freelance work for multiple clients.

What Are Other Ways to Get Funding When You’re Self-Employed?

Personal loans can be useful to some consumers, but they aren’t always the right choice.

Depending on your financial situation and what you plan to do with the loan funds, you might also consider options including:

Business loans. If you are looking to fund your business, you can consider small-business loans. Options include term loans and equipment loans.
Equity financing. If you are starting a company that won’t have cash flow for years, or potentially at all, Atwood recommends thinking about selling some equity.
In this scenario, you are selling part of the ownership of your company.
Home equity loans or cash-out refinances. If you own a home and have equity, you can use one of these tools to get access to cash.
Tapping into home equity is an especially appealing option with the low interest rates that are currently available, Walsh says.
0% APR credit cards. If you are considering a personal loan to consolidate credit card debt, you can also look into 0% annual percentage rate credit cards;
which generally charge no interest on balances for between 12 and 21 months.
You can transfer existing balances to the card, but be sure to plan on paying off your debt before the introductory period ends. Otherwise, your debt will start accruing interest again.
Secured personal loans. Personal loans are typically unsecured, but lenders also offer secured options.
In this case, borrowers put up collateral, such as a car or boat, which they could lose if they default on the loan. In exchange, borrowers can get lower rates.
“Your unsecured loans have higher rates … than your typical secured loans, all depending on credit, obviously,” Olson says.

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Overall, you should think about what you want to use the money for when deciding whether to pursue a personal loan.
“I can’t stress enough that the person needs to match the funding with the thing that they’re trying to fund,” Atwood says.