According to recent statistics from the U.S. Bureau of Labor Statistics, over 9.5 million people are self-employed.1 As small business owners, entrepreneurs, and independent contractors, these people use their skills and expertise across every industry.
The freedom of self-employment can come with some setbacks. Aside from the stress and headaches that come with running your own business, money troubles can send self-employed people searching for quick cash loans that can help them recover from a revenue loss.
Read on to learn more about payday loans for the self-employed!
Payday Loans Today
The number of self-employed people who need the financial relief that can come from a personal loan is on the rise. One of the fastest, hassle-free ways to get money comes from online payday loans. However, payday loans for self-employed people can be hard to come by.
Payday loans can call for records like pay stubs and W2s because they can easily prove employment. There are better choices if you need money now.
In this blog, we’ll discuss self-employed payday loans and these alternative cash advances:
- Credit card cash advances
- Home equity loans
- Home equity lines of credit
- Personal loans
What Are Payday Loans?
Payday loans, or cash advances, are loans that are ideal for short-term problems. They are designed to fill the gaps between paydays. This way, a borrower can get the money they need now instead of on their payday.
A borrower must fill out an application form with a financial institution to apply. If approved, the payday lender then gives you money and cashes your check at the end of the loan term (about 14 days). These loans are available online or at thousands of brick-and-mortar locations across the country.
Credit Score Requirements
These bad credit loans are a good option for individuals that can’t get loans from banks. About 53% of Americans are turned down for loans due to bad credit.2 Bad credit is considered a FICO score of 600 or lower.3
Good credit is typically not a requirement, which is why many lenders offer no credit check payday loans for self employed workers. No credit check loans do not affect credit scores, but they may have higher than usual rates to mitigate risk.
An Overview of the Pros and Cons
| Pros of Payday Loans | Cons of Payday Loans |
| Fast Approval: They are usually approved quickly, often within a few hours or by the next business day. | High-Interest Rates: They typically have very high interest rates, which can make them an expensive form of borrowing. |
| Easy Access: They are widely available and easy to apply for, often requiring minimal documentation. | Short Repayment Period: They usually need to be repaid by your next payday, which can be a challenge if you’re facing financial difficulties. |
| No Collateral Required: Payday loans are unsecured, meaning you don’t need to provide any assets as collateral. | Debt Cycle Risk: If you’re unable to repay the loan on time, you may need to take out another loan, potentially leading to a cycle of debt. |
| Bad Credit Considered: Many payday lenders are willing to lend to people with bad credit. | Additional Fees: If you’re unable to repay the loan on time, you may be hit with additional fees and charges. |
| Small Loan Amounts: They can be useful for emergency expenses or when you need a small amount of money quickly. | Impact on Credit Score: Failure to repay can negatively impact your credit score. |
What Documents Do Self-Employed People Need To Get a Loan?
To get a cash advance loan, a potential lender must determine that an applicant has good financial habits and a reliable source of income. Without W2s and pay stubs to prove steady income, self-employed workers must have a host of other documents available.
Tax Returns and Transcripts
Above all the other acceptable documents to prove income, tax returns are the most requested by lenders for applications from the self-employed. At a glance, tax returns can quickly provide detailed information about your income over some time. For most applications, lenders will ask to see two or three years’ worth of signed returns.
Tax returns are ideal documents to submit to lenders if you, as a self-employed individual, have a terrible or not-so-great credit score. While a low credit score can diminish loan approval chances, solid proof of your income can help turn the tide on a denial. In the end, lenders want their money back with interest paid, and proving you can do that will go a long way towards a loan approval.
Schedule C Document
In addition to your tax returns, lenders may also ask to see your most recent Schedule C document. For people who do business as a sole proprietor or single-member LLCs, the Schedule C document details the profits, expenses, and losses of your business—which, under these circumstances, is just you.
Since most or all of the profits and income from your business are reported on your return, the Schedule C essentially confirms the facts about the money you make.
1099-MISC Form
For those that are self-employed as independent contractors, another critical document to have ready is the 1099-MISC form. The 1099-MISC form is used to report any income over $600 received from a client or business for your professional services. This form is used by lenders—in conjunction with documents like your tax returns—to ensure that your income as a self-employed borrower is steady enough to manage the terms of any loan.
Schedule SE Form
A Schedule SE Form is used to show the amount of taxes paid on your income, as well as the taxes owed towards Medicare and Social Security. Any suitable lender will want to know that your tax payments are current and without any discrepancies. Errors in your expenses may trigger the Internal Revenue Service (IRS) to perform an audit of your assets and liabilities. That kind of risk would be a bad investment for the lender.
Bank Statements
A self-employed borrower should have many weeks’ (or even a year’s) worth of bank records available. These statements will show a history of regular deposits from your work and show potent lenders that you have a steady stream of income that can support loan repayments.
Loan Collateral
Loans are available in two forms: unsecured and secured. An unsecured loan is given based on the creditworthiness of the borrower and is backed by nothing. On the other hand, a secured loan is a loan backed by collateral.
For people with a bad credit score that can’t get an unsecured loan, it may be possible to get a secured loan by “putting up” a house, car, or financial asset like a savings account. Collateral lessens the risk for the lender, which in turn will increase your chances for approval. However, if you fail to complete the monthly payments—or default—on a secured loan, the lender can take possession of your assets.
Other Loans for Gig Workers
With bad credit, payday or personal loans for self-employed workers can be even more difficult. It’s no secret that bad credit can limit options for lower interest rates and long-term installment plans for repayment —two conditions that can make a loan manageable. If you’re self-employed and can’t get a loan, here are some options that you may want to consider:
Credit Card Cash Advance
Credit card cash advances are essentially short-term loans funded by the line of credit associated with your credit card. Getting credit card cash advance loans is as simple as withdrawing cash from any ATM in the world, which makes these types of loans convenient.
We’re listing this loan option with great caution because cash advances on credit cards can come with many expensive strings attached. Not only do these cash payouts come with very high-interest rates (paid on top of your card’s APR), but they can also have additional processing fees attached depending on the ATM or bank you choose to withdraw from.
If you have bad credit, this option may only be available to people that already have a credit card, as opening a new card may be difficult. If you don’t make enough money to pay your bills, know that credit card advances can only make your finances worse, so be careful.
Home Equity Loans
If you are a homeowner who needs a cash advance, you may be sitting (or living) in the answer to your short-term financial need. A home equity loan is a loan backed by your home. Because they are secured loans, they may have lower interest rates than many other loan options. But you must typically meet strict credit score requirements and wait an extended period to get funds.
Repayment is made through an installment plan that will run concurrently with any payments you are still driving on the mortgage. This is why home equity loans are also known as “second mortgages.” But remember that you may lose your home if you fall behind on payments.
HELOCs
Home equity lines of credit (HELOCs) are very similar to home equity loans. But while a home equity loan is a lump sum, a line of credit allows for a revolving amount of money. So the credit limit would be the total amount of money available to borrow.
In that way, a HELOC is the same type of spending power you would get with a credit card. That means that if you only use $40,000 of your available $80,000 equity, you won’t have to return the total of $80,000.
Personal Loans
A personal loan is a small to large cash advance that borrowers repay in monthly installments. The maximum loan amount varies per lender, but it’s possible for eligible borrowers to get a 3500 loan today without delay for unexpected emergencies.
Most personal installment loans are unsecured, so borrowers do not need to risk using collateral. These can be great loans for the self-employed because the eligibility requirements are typically flexible. Although lenders may require a credit check, it’s still possible to qualify for affordable repayment terms with bad credit.
FAQs About Payday Loans for Self-Employed People
They are short-term loans designed to provide quick cash until your next paycheck. For self-employed individuals, the process is similar, but you’ll need to provide proof of a steady income from your self-employment.
Your credit history can play a significant role in your ability to secure funding with this type of loan. Payday lenders often perform a credit check to assess your ability to repay the loan. However, some lenders offer bad credit payday loans, which might be an option if your credit history isn’t perfect. But these loans generally are a high-cost option.
Yes, some lenders offer these loans to individuals with bad credit. However, the interest rates may be higher, and you’ll need to prove that you have a regular income from your self-employment.
Yes, most payday lenders require borrowers to have a valid bank account. This is because the loan amount is typically deposited directly into your account, and repayments are taken from the same account.
You’ll typically need to provide proof of income, which can include bank statements, tax returns, or other financial documents that demonstrate your earnings from self-employment.
Some lenders offer short-term loans with no credit check, but these are typically associated with higher interest rates. It’s essential to read the terms and conditions carefully before agreeing to such a loan.
While some lenders may offer promotional interest-free cash advances, these are usually for a limited time only. It’s important to understand the terms and conditions, as interest rates can be high once the promotional period ends.
A Word of Caution From CreditNinja on Payday Lending
A cash advance loan is a common borrowing choice for self-employed professionals. However, these instant loans tend to have repayment terms that cause additional financial stress for borrowers. But, with thorough research and decision-making, those in business for themselves can find the best loan option to make their way out of financial trouble.
Check out our online blog for additional information on various loan products and budgeting with irregular income.
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