How To Obtain Business Loans For Self-Employed Workers

By the Pachyy Editorial Team The Pachyy Editorial Team comprises a diverse and experienced team of writers, researchers and subject matter experts whose aim is to provide you with useful insights, guidance and commentary on all matters related to your personal finances.

Are you curious about how you can secure business loans for self-employed workers? You have several options to obtain funding, including applying for loans, grants, or funding programs. It’s important to gather information about your business and fulfill specific requirements when pursuing these opportunities. Interestingly, approximately 6% of Americans are self-employed. The even better news is that various funding options exist to support individuals like you in managing and developing your business!¹ By reading further, you will discover crucial details on how self-employed business owners can access loans to cover all sorts of business expenses.

What Determines the Size of a Business?

It’s a common misconception that only traditional brick-and-mortar business owners are considered small business owners. In reality, the government recognizes anyone who is self-employed as a small business owner. So, whether you work as an independent contractor or are self-employed in any other capacity, you have the opportunity to access funding through a business loan.

Types of Funding Options for Small Businesses and Self-Employed Individuals

When it comes to covering your business costs, there are different types of funding options available depending on your specific needs. Here are two options you can consider:

Business Line of Credit

If you are not sure about the exact amount of funding you require, a business line of credit can be a suitable choice instead of taking individual business loans. This type of credit offers a revolving line, meaning you can access your credit limit again at the end of each billing cycle. It gives you consistent and convenient access to funding without the need for re-applying. However, it’s important to create a repayment plan to effectively manage debt for both personal and business expenses.

Business Installment Loan

If you already have a specific amount in mind to cover your business costs, a business installment loan may be a better option. Similar to personal loans, these loans cater to a wide range of credit scores. However, the loan terms, including interest rates, loan amounts, and payback schedules, may vary based on individual credit history.

Welcome to the Funding Programs Offered by the Small Business Administration!

We are here to assist you, whether you’re an independent contractor or a small business owner, in pursuing your business goals. The Small Business Administration (SBA) was established in 1953 as a resource to provide professional counseling, SBA loans, and other funding opportunities for your success. Here are the different types of funding available through the SBA:

SBA loans
Investment capital
Disaster assistance
Surety bonds
Grants

Below, you’ll find more information about the SBA funding and assistance you may have access to as a self-employed worker.

SBA Small Business Loans

If you’re a self-employed individual looking for funding, SBA loans are the most common way to take advantage of what the SBA offers.

7(a) SBA Loans

The most popular SBA loan is the 7(a) loan. It’s designed to help small businesses in special circumstances, such as purchasing real estate, covering short or long-term business expenses, refinancing existing debts, or acquiring necessary items for your business. The maximum loan amount for a 7(a) loan is $5 million.

504 SBA Loans

A 504 loan can be used to purchase assets that contribute to the growth of your business or help with job creation. Certified Development Companies (CDCs) regulated by the SBA provide the funding for 504 loans. Similar to a 7(a) loan, the maximum funding amount for a 504 loan is $5 million. But there’s a special circumstance regarding energy projects, where businesses can request funding for up to $5.5 million per project and up to three energy projects not exceeding a total of $16.5 million.

SBA Loan: Microloans

If you need funding of up to $50,000 for your small business or not-for-profit child care organization, an SBA microloan is here to help. The SBA distributes funds to individual nonprofit financial institutions, which then provide financing to eligible self-employed individuals and small business owners.

SBA Loan: Lender Match

With the SBA’s Lender Match program, finding the best possible quick cash loans for your business becomes easier. By filling out an application on the SBA website, you’ll be matched with a lender in just two days. From there, you can work with lenders directly to apply for online loans.

Investment Capital

If you’re looking to acquire investors for your small business ventures, the SBA can assist you. Investors can provide both debt and equity investments, supporting various aspects of your business.

Disaster Assistance

In case your business has been affected by a natural disaster, the SBA can offer assistance through low-interest disaster assistance loans.

Surety Bonds

With the SBA’s backing, you can access funding guaranteed to be safe through surety bonds. Unlike other loans, surety bonds involve three parties: one that extends the funding, one that utilizes it, and another that secures it.

Grants

If your business is involved in scientific or medical research, the SBA can help you discover government programs that offer funding for your research and development efforts.

Paycheck Protection Program (PPP Loans)

Additionally, the Small Business Administration can connect you, as a self-employed worker or business owner, to PPP loans. You can conveniently submit a PPP loan application directly on the SBA website. Expenses that can be covered with PPP loans include:

Payroll for employees
Rent for your business space
Interest payments
Utility payments or other maintenance costs/business expenses
Worker protection expenses and operating expenses
Cost of supplies or other services needed to run your business
Property damage costs

Qualifying for Small Business Loans as a Self-Employed Individual

When applying for a small business loan, lenders consider the borrower’s ability to repay as a crucial factor. Lenders are generally more inclined to provide funds to businesses that generate higher profits. If you are a self-employed business owner, you can provide certain documents to demonstrate your income. Some of these documents include:

An official business license
A balance sheet indicating profits and potential losses
Personal income tax return statements
Business tax return statements
Bank account statements from your business account

Steps To Take Before You Apply for a Small Business Loan

Make sure you are prepared by taking the following steps before you dive into the business installment loan process.

Come Up With a Business Funding Plan

Before you fill out an application, it’s important to think about your business plan and why you are seeking a loan. Ask yourself questions like:

Am I looking for a short-term or long-term loan?
Do I need funding for recurring expenses or a lump sum?
How long do I want to take to pay back the loan?
What do I want my monthly payments to be?

By answering these questions, you’ll be able to determine the type of funding product that suits you best. Plus, having these answers ready will impress your lender and save you time!

Check Your Credit Scores

It’s a good idea to check your credit report before applying for a loan to see where you stand. Although it’s not a personal loan, lenders will still be interested in your personal credit score. However, this is usually just to confirm that you are not undergoing the bankruptcy process or pre-bankruptcy counseling. To keep your business loan separate from your personal credit, make sure to fill out the loan application in your business’s name instead of your personal name.

Research Lenders

Lastly, to protect your financial interests, take the time to research lenders and the types of financial products they offer. Some lenders may offer special deals and perks that are unavailable elsewhere, so it’s beneficial to explore your options.

Do You Want to Know How Self-Employed Individuals Can Get a Small Business Loan?

Let me explain the process for obtaining self-employed business loans in a friendly and helpful manner.

Step One: Apply for Funding

First, you need to find the right lender for your needs. You can go to the lender’s website and complete an online inquiry, speak with a loan agent over the phone, or even visit the lender’s physical location to fill out an application.

Step Two: Submit Documents

Once your application is approved, your lender will request several documents to verify your information. These documents include:

A government-issued photo ID
Proof of income
Proof of personal and business residency
Banking information for funding distribution

Step Three: Get the Funds

Once your lender has processed your documents, they will provide you with a loan contract. Take your time to read the agreement and ask your lender any questions you may have. Once you are satisfied, simply sign and date the contract. Rest assured that within approximately 24 hours or less, you will receive the funding you need!

Get a Comprehensive Overview of Small Business Loans for Self-Employed Individuals at Pachyy

Whether you work as an independent contractor or own a small business, there are various funding options available to support your financial needs. To maintain a clear separation between your personal and business finances, it’s essential to apply for business loans and personal loans separately. At Pachyy, we are committed to ensuring financial transparency. That’s why we provide free resources on our website to help you manage your finances effectively. You can enhance your personal financial knowledge by learning how to calculate the annual percentage rate (APR) of a loan and how to improve your credit history. For additional information, you might find the following sources helpful: