How to Qualify for a Loan as a Self-Employed Person in the UK?

Getting a loan as a self-employed individual is tricky due to the cumbersome qualification criteria. Every loan provider prioritises affordability and hence ensures just the right terms that safeguard the interests of the individuals.  

It is difficult to get a loan as a self-employed or freelancer because of the inconsistent earnings. Such people generally have seasonal income with no or limited assets to count upon. Thus, the loan provider shares the risk of facing the loan default if the person fails to repay.  It is the reason one finds these loans with high interest and costs.   

However, challenges in getting a loan do not mean you cannot get it at all. It is all about understanding the terms, eligibility criteria, and affordability before applying for the loan. The blog lists the strategies that may help a freelancer get a loan immediately. These secret tips may help a new business owner or one struggling financially to achieve business goals.  

Why is it difficult to get a loan as a self-employed individual?  

Income volatility is one factor that can affect getting a loan on time. Your monthly cash flows may vary significantly as a self-employed individual. Here are some reasons why you may encounter difficulty in getting a loan:  

a) Less standard documentation 

Unlike salaried employees, you may not have regular pay slips that generate doubts for the creditors. Here, thus, they need an alternative proof.   

b) Perceived as risky 

If your business is new, your revenue is low. Thus, you may not meet the eligibility requirements set by the direct lenders online. It impacts the individual’s ability to qualify for the requested sum.  

c) Collateral or guarantees are often required  

As self-employed individuals lack sufficient income, credit history, and assets, loan providers often require a personal guarantee. It acts as an additional security on the loan and helps one qualify even with a bad credit score.  

One may get very bad credit loans from direct lenders in the UK marketplace if you have a consistent business history. It is possible to get a loan quote at comparatively low interest rates.

Obtaining a loan as a self-employed individual 

Individuals starting their small business from home are generally deemed self-employed persons. They do not work under any organisation but operate individually in their business name. You may not have enough assets to secure against the big lump sum. Therefore, unsecured loans for the self-employed in the UK may help you there.  

You may get up to £1000- £5,00,000 for your needs. If you have bad credit, limited revenue, or low sales, the loan provider may ask you to provide a personal guarantee. It could be a person, personal or business assets, which the borrower agrees to pay the dues with if he defaults.  

You may get the loan for a period of 1-5 years as an unsecured business loan. It means you must pay fixed monthly instalments on the loan.  The flexibility on loan payments helps you reschedule repayments according to your comfort and affordability.  

Do you qualify to get a loan as a freelancer? Let’s check! 

Below is the checklist and the standard criteria of a loan as a self-employed person.  It will help you understand the aspects required and apply them accordingly:   

Can you get a mortgage as a self-employed?  

Yes, you can get a mortgage as a freelancer, as your income does not remain the same each month. If you receive more than the usual salary, then you may qualify for a mortgage quote. There are no specific mortgages for self-employed people.  

Instead, you will need to apply for a standard mortgage. You thus need to provide at least 2 years of accounts and tax returns that demonstrate a healthy track record of finances and tax returns.  

How to improve your chances of getting a loan as a self-employed? 

Yes, you may get a loan despite inconsistent income as a self-employed individual. You just need to analyse what you need to work upon. Here are some aspects that you should consider:  

Keep a record of all your accounts  

Ensuring and upkeeping business finances and reports in check helps you keep accounts updated till the latest date. Some loan providers may help counter and look out for those aspects that you struggle to update. However, you need to be clear about that.  

Check secured business loans  

As you know, getting a self-employed loan is challenging, especially if seeking an unsecured one. Thus, you can seek secured business loans if you have assets to secure. Identify which assets you can tap to get a better amount on the loan.   

Providing one helps you fetch reduced interest rates and terms. However, non-repayment on the loan may lead to asset seizure. Identify and consider a secured loan only if you can repay it on time.  

Boost your personal and business score 

You can improve your credit score by updating and paying off your pending debts. The better your credit score, the higher the chances you have of qualifying.  Here is how you can do that:  

• You should have a valid official and residential address 
• Separate your personal and business finances 
• Pay bills and accounts on time 
• Use available credit responsibly 
• Check and update your credit reports daily   

Co-sign the loan or consider a personal guarantee  

Co-signing the loan grants you the flexibility of getting better terms and instant loan approval. It eases the aspects to plan for and achieve your goal the same day. Identify whether you can co-sign the loan with your business partner. You can consider this if in a partnership business.  Co-signing the loan with someone who has a good credit score and net worth may help.  

Bottom line 

These are some of the best ways to get a loan as a self-employed individual in the UK. Try to understand and avoid mistakes while applying for the loan. Understand the eligibility criteria well and the documentation to avoid committing any mistakes. Check whether you can get the loan without hiccupping over the low business income, but with assets.