Being self-employed doesn't automatically prevent you from qualifying for a personal loan. The difference often comes down to how you document your income.
Traditional employees can typically provide pay stubs or W-2 forms when a lender asks for income verification. Freelancers, independent contractors, sole proprietors, and other business owners may have different records. As a result, lenders may ask for tax returns, bank statements, or other documents when evaluating self-employment income.
If you're researching personal loans for self-employed borrowers, knowing what lenders may request can help you prepare your documents before submitting an application.
Can You Get a Personal Loan If You're Self-Employed?
Yes. Self-employment by itself does not mean you cannot qualify for a personal loan. However, lenders generally need a way to assess your ability to repay what you borrow.
The exact personal loan requirements depend on the lender. Your income, credit history, existing debts, requested loan amount, and other underwriting factors may influence the decision.
Self-employed applicants can face an additional hurdle because their income may fluctuate and they may not have the same documentation as traditional employees.
For example, SoFi notes that applications involving self-employment or income requiring additional review can take longer to verify than some other applications. Upgrade also has separate income-verification guidance for self-employed applicants.
What Documents May Self-Employed Borrowers Need?
Documentation requirements vary by lender and by the type of self-employment.
Common records may include:
- Personal tax returns
- Business tax returns or schedules, when applicable
- Recent bank statements
- Documents showing business or self-employment income
- Identification documents
- Additional records requested by the lender
Tax returns can be especially important because they provide a documented history of reported income.
For example, SoFi currently states that its documentation requirements depend on the type of self-employment. Sole proprietors and independent contractors may be asked for two years of filed federal tax returns and Schedule C forms. In some cases, SoFi may request three recent bank statements as additional income documentation.
Upgrade also states that self-employed applicants need their two most recent filed tax returns for income verification. According to its current guidance, an application may be denied if Upgrade cannot verify qualifying self-employment income.
That makes checking a lender's specific self-employed loan requirements important before applying.
How Do Lenders Verify Self-Employment Income?
The proof of income for personal loan applications can differ depending on how you earn money and how your business is structured.
A lender may use tax returns to examine reported earnings across multiple years. Bank statements may provide additional evidence of income, although lenders may need to determine which deposits actually represent income.
The process can become especially important when your earnings fluctuate from year to year.
Upgrade, for instance, says self-employed applicants should report net income rather than the gross income requested from W-2 employees. It also states that qualifying income may be adjusted downward when recent income trends are lower than prior years.
Requirements can differ substantially between lenders, so one company's documentation policy should not be treated as a universal rule for every personal loan.
What Else Do Personal Loan Lenders Review?
Income documentation is one part of a personal loan application. Lenders may evaluate several other factors before deciding whether to approve an applicant and what terms to provide.
Depending on the lender, these may include:
- Credit history
- Credit score
- Income
- Existing debt
- Debt-to-income ratio
- Requested loan amount
- Income consistency
- Information included in the application
Meeting an income requirement therefore doesn't guarantee approval.
The interest rate and terms you're quoted can also depend on your financial profile. Applicants who qualify for the same lender may receive different rates based on their individual circumstances.
What If Your Self-Employment Income Is Irregular?
Variable income is common among freelancers, contractors, and small business owners. A strong month followed by a slow month doesn't necessarily provide lenders with the same predictable income pattern seen with a fixed salary.
This is one reason historical documentation can matter for loans for freelancers and other self-employed applicants.
Keeping tax returns and financial records organized can make it easier to provide requested information. Applicants should also report income according to the lender's instructions rather than assuming every company calculates self-employment income the same way.
If your income has recently declined, keep in mind that some lenders may place greater weight on the lower recent earnings when determining qualifying income.
Personal Loan Options for Self-Employed Borrowers
There isn't a separate category of loans that every self-employed applicant must use. Many standard personal-loan providers accept self-employment income, although their verification procedures can differ.
Two examples from the original source have current published information specifically addressing self-employed applicants.
SoFi
SoFi provides specific documentation guidance for different forms of self-employment.
Its current guidance indicates that sole proprietors and independent contractors may need two years of filed federal tax returns with Schedule C. Documentation differs for S corporations, partnerships, and other business structures. Additional bank statements may also be requested.
SoFi currently advertises personal loans from $5,000 to $100,000. Its published rates and terms can change, so applicants should check current terms directly before applying.
Upgrade
Upgrade has separate application guidance for self-employed borrowers. It states that self-employed applicants report net income and may need to provide documents so the company can verify that income.
Its self-employed applicant guidance currently requires the two most recent filed tax returns and notes that additional verification may occur.
Upgrade currently advertises personal loans up to $50,000, although eligibility, rates, and available terms depend on the applicant and current lender requirements.
How to Prepare Before Applying
A little preparation can reduce the chance that you're scrambling for documents after submitting an application.
Before applying for self-employed personal loans, you can:
- Review your credit reports. Check for errors that could affect a lender's assessment.
- Gather recent tax returns. Some lenders specifically request multiple years of filed returns from self-employed applicants.
- Organize bank statements. Have recent statements accessible in case they're requested for income verification.
- Calculate income according to the lender's instructions. Don't assume every lender uses the same definition of qualifying income.
- Review existing debts. Your current financial obligations may affect qualification and the amount you can reasonably afford to repay.
- Compare loan costs. Look at APR, fees, repayment term, monthly payment, and total repayment cost rather than focusing only on the advertised interest rate.
- Check lender requirements before applying. Documentation policies can differ, particularly for sole proprietors, partnerships, corporations, and independent contractors.
Checking these requirements ahead of time may help you identify lenders whose verification procedures fit the records you already have.
What If You Can't Qualify for a Personal Loan?
If a personal loan isn't currently available or suitable, the appropriate alternative depends largely on why you need the money.
Business financing may make greater sense when the funds are specifically for business expenses. A credit card can provide revolving credit rather than a one-time lump sum, though interest costs can be significant when balances are carried. Homeowners may have access to financing secured by home equity, although using a home as collateral introduces the risk of losing the property if the debt isn't repaid as agreed.
Compare the costs and risks carefully before replacing an unsecured personal loan with another form of debt.
Prepare Your Income Records Before You Apply
Getting a personal loan while self-employed may require additional documentation, but employment status alone doesn't determine the outcome.
Before applying, check exactly how the lender verifies self-employment income and gather the requested tax returns, bank statements, and other records. Then compare APRs, fees, repayment terms, and eligibility requirements across lenders.
Strong documentation can help a lender evaluate your income, while your broader financial profile will still play a role in the final lending decision.
