What is a self-employed personal loan?
A self-employed personal loan is a personal loan for people who are sole-traders or run their own business. While the application process is a bit different for self-employed personal loans, there are still plenty of options available to people who are self-employed. Typical options available to self-employed people include the following:
- Specialist loans. The first way is through a specialist lender who provides personal loans for self-employed people. These may include lenders that offer self-employed loans for tradies or personal loans for ABN holders.
- Standard personal loans (secured or unsecured). You can apply for any standard personal loan if you can meet the documentation requirements as an employed person.
- P2P loans. You can also submit an application to a P2P lender if you meet the eligibility and employment criteria.
- Low doc loans. If you cannot meet the doc requirements, you can apply for a low doc loan, which requires fewer documents, although this type of loan is usually more expensive than a traditional loan.
How can I get a personal loan if I’m self-employed?
If you have a long-established business with a steady cashflow, or have been a sole trader or independent contractor for years, your chances of approval are better. Borrowers who have just set up a business will struggle to prove they can repay the loan.
As a self-employed borrower you also need to make sure you meet the lending criteria for the personal loan you're applying for. Lenders may ask for different paperwork, such as tax statements or business bank account statements.
Don't apply for a loan if the lender requires evidence you can't provide.
Do I need to apply for a low doc loan?
Low doc loans can be a useful resource for self-employed people who may not otherwise be approved for a standard personal loan. This is because they require less documentation than traditional loans, which means a quicker and easier application process. So, if you struggle to prove your income or assets, you may find it easier to be approved for one of these loans.
However, the only reason you should apply for a low doc loan is if you can’t meet the documentation requirements set out by a standard personal loan. Low doc loans normally have higher rates and fees than standard loans, especially if you're dealing with a specialist lender. They also usually have fewer features and less flexibility than traditional loans. So, you don’t necessarily want to apply for one unless it’s your only option.
What documentation do I need?
For self-employed applicants, lenders usually require any or all of the following documentation. Keep in mind that applying for a low doc loan may mean you won’t need some of these documents:
- Tax returns. Be prepared to show the last two years of your full personal and/or company tax returns. These will help prove any income you declare on your application.
- Financial statements. These may include any profit/loss statements to also support the income you declare.
- Proof of rental income. If you have any income from rental properties, you can declare this with real estate statements or copies of your executed lease agreements.
- Notice of Assessment. Make sure you have on hand your latest Notice of Assessment (NOA) given to you by the Australian Taxation Office (ATO). This shows tax information such as the amount of income tax you owe(d). Depending on the lender, you may need to provide your NOAs from the last two years.
- Recent bank statements. This includes statements showing your savings and business transactions. It may also include statements showing any other outstanding loans or credit cards you have with other lenders.
- Company-specific information. If you own your own business, be prepared to provide information such as your company’s ABN, address, etc.
- Personal identification. Depending on the lender, this may be your Australian driver’s licence, passport or proof of age card. You’ll either need to copy your ID and fax it over to the lender or scan it and attach the digital file to your application.
Are self-employed loans more expensive than standard personal loans?
As mentioned earlier, low doc loans are usually more expensive than standard personal loans. This means that you should try to qualify for a standard personal loan before you look for a low doc loan.
Keep in mind that many banks and alternative lenders may offer loans that aren’t more expensive than standard loans to self-employed individuals. Make sure you’re comparing all options and that you’re aware of exactly what’s out there before deciding to apply with any particular lender.
How can I compare my options?
Keep in mind the following factors when comparing the loans offered by different lenders:
|Interest rate||Make sure you know the difference between a fixed and variable interest rate. If you're going with a variable interest rate, check that you will be able to make monthly repayments if the rate happens to spike upwards at any time.|
|Turnaround time||Depending on why you're applying for the loan, you may need your money disbursed within a certain timeframe. Make sure that any lender you choose can provide your money within the time period you need.|
|Eligibility||Before applying for any loan, check what the eligibility requirements are. Also, avoid applying for too many loans within a short period of time as lenders will often consider you an irresponsible high-risk borrower if you make frequent applications.|
|Application process||When comparing different lenders, be aware of the application process specific to each lender and what kinds of challenges or difficulties you may face when applying.|
|Loan cost||Make sure you're aware of all fees associated with each loan. This includes any one-off or ongoing fees.|
|Secured vs unsecured||Always check to see if the loan you're considering is secured or unsecured. In other words, check whether the lender requires you to put up any collateral as security for the loan. Security could include assets such as your home or business equity.|
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Frequently asked questions about self employed loans
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