Running your own business can be incredibly rewarding. However, if you’re self-employed and you require a personal loan, you may struggle to meet some of the eligibility requirements. Lenders often see self-employed individuals as more of a risk due to the fact that most small businesses (60%) fail within the first three years, according to the Australian Bureau of Statistics. Self-employed people may also struggle to prove their income or any assets that they may own, which can make it difficult to be approved.
However, there are options available from both traditional and non-traditional lenders offering personal loans to self-employed individuals. In fact, some lenders may approve your application in under 48 hours, so there’s no reason to feel pessimistic. The more you know about your options, how the process works and what documents you’ll need, the better your chances of a lender approving your application.
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?
You will need to check the lending criteria of each to see if you qualify. If you're unsure about a lender's eligibility criteria, it's important that you contact that lender prior to submitting an application with any questions that you may have. There are also specialist brokers who may be able to assist you in preparing the right paperwork.
Keep in mind that for a standard personal loan, you'd usually need to provide at least two years of tax statements in order to qualify as a self-employed person. Depending on your lender, you may also be required to put up collateral as security for your loan.
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:
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.
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.
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.
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.
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.
Frequently asked questions
This depends on several factors such as your particular lender, your requested loan amount and how well you meet eligibility requirements. You can always find out the minimum and maximum loan amounts offered by a lender by clicking through to the particular lender's review page using the table on this page.
Make sure you understand exactly what you need the loan for and avoid getting mired into too much debt. This means that you should avoid applying for loans if you don't actually need them. Also, make sure you never apply for more money than you actually need.
First, always check that you meet all eligibility and documentation requirements before applying for a loan. Secondly, consider having a guarantor sign off on your loan, which would help alleviate any hesitation on the part of the lender. Finally, you can file a joint application with another person, where you and the second party would be equally responsible for the requested loan.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over six years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth's passion is writing about innovations in financial services (which has surprised her more than anyone else).
You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.
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