Applying for a personal loan is a complicated process as is, but if you're self-employed, be prepared for a few extra steps and much more paperwork.

Self-employed workers enjoy a number of benefits, like flexible hours and tax breaks; but whether you’re a freelance designer, a career coach, or even a stand-up comedian, there’s always a catch to being your own boss.

To qualify for a personal loan as a self-employed individual, you’ll have to go the extra mile to prove you’re capable of repaying the loan. Lenders will evaluate your income level and debts to assess how risky or reliable you would be as a borrower. In addition, you may write-off thousands in business expenses, leaving a much smaller total taxable income — which is the number your lender will care about a great deal.

However, just because the application process is a little more extensive for prospective self-employed borrowers does not mean it’s impossible — nor is it discouraged by lenders. Review the information below to make sure you’re ready to prove to lenders you’ve got what it takes.

How to get a personal loan when you’re self-employed

Qualifying for a personal loan is not impossible when you’re self-employed; it just requires a little extra work. Make sure you’re prepared to complete the following steps in the application process.

Prove your identity

To begin your application, you’ll need some means of verifying your identity and address, such as a driver’s license or U.S. passport.

Verify your income

If you were a full-time employee, you’d typically provide W2s from the last two years to verify your income, but most self-employed individuals don’t receive W2s for their work. Instead, come prepared with some other documentation — such as 1099s, income tax returns, a Schedule C or Schedule SE, and bank statements. You should also collect several years’ worth of forms, as many lenders request more than two years of documents for self-employed applicants.

Demonstrate a strong credit history

Credit is one of the most compelling indicators of financial competency; consequently, it’s a number that matters greatly to lenders.

If your score is greater than 800, you’re in the clear. If it’s below 580, you’ll have some work to do. The range between these slides from fair (580-669) to good (670-739) and even very good (740-799), and where you fall on this spectrum will not only help lenders determine whether or not to give you a loan, it can also influence the interest rate and total loan amount they offer.

Fortunately, there are ways to rebuild your poor credit score or even begin building a strong score from scratch.

How to increase your eligibility for a personal loan when you’re self-employed

How To Apply For A Personal Loan If You're Self-Employed - How to increase your eligibility for a personal loan when you're self-employed

Fortunately, your income and credit history aren’t the only details lenders use to determine your eligibility for a personal loan. Read on for tips to make your application a little more attractive to providers.

Maintain plenty of savings

Some lenders may search for a healthy savings or emergency fund from self-employed applicants. If the borrower is unable to obtain sufficient earnings some months to cover their bills, their savings can serve as a backup plan.

Keep your debts small

A low debt-to-income ratio can also offset some of the risk lenders take on by loaning to self-employed individuals. With fewer bills to pay, lenders won’t have to compete for a borrower’s cash, especially during seasons of less work.

Display consistency in your career

Another detail lenders like in applications from self-employed individuals is a relatively stable career path, generally for two years at the minimum. If you just transitioned to freelance a year ago or you’ve dabbled in writing, photography, and graphic design, lenders may see your “bold career move” or “versatile background” as a red flag.

Consider a cosigner

Adding a cosigner to the application can make qualifying for a personal loan much easier for those who are self-employed. If the borrower ever struggles to make payments, the lender has someone to fall back on.

This can also be a great option for self-employed applicants who have a poor credit history. The borrower can mooch off of their cosigner’s healthy credit and potentially receive a lower interest rate or higher loan amount as a result.

Where can you get a personal loan if you’re self-employed?

There are plenty of potential lenders self-employed workers can consider. Some companies even specialize in personal loans for self-employed applicants. Nevertheless, it’s important to compare quotes from multiple lenders before you accept an offer.

Monevo is a great matching service for personal loans, so their the perfect place to start. With loan amounts ranging from $1,000 – $100,000 and over 30 lender options, Monevo has a lot to offer. It takes just 60 seconds to search through Monevo’s database, and you’ll see a large number of options when it comes to both rates and terms, so you can find the best fit for your budget. Plus, you’ll see no effect on your credit score!

You can also check your rates through Upgrade, which offers loans up to $50,000. The application process is just a few simple steps and you can get the fund in your account just a day after all of your info has been verified. Plus, if you want to pay off your loans early, there are no prepayment fees with Upgrade.

Alternatives to personal loans for self-employed individuals

How To Apply For A Personal Loan If You're Self-Employed - Alternatives to personal loans for self-employed individuals

If you’ve made it this far and still aren’t sure you’ll qualify for a personal loan, don’t worry! There are a number of favorable alternatives to consider. 

Secured personal loan

The difference between secured and unsecured personal loans comes down to collateral.

Secured loans are backed by collateral, such as property or some other asset. Unsecured loans, surprise surprise, are not. Secured loans are not only less risky for lenders, but as a result, borrowers can often get a better interest rate.

Credit card

Depending on how much cash you need, a credit card may be an ideal solution; plus, credit cards come with some added perks.

For one, with a credit card, you have the opportunity to earn cash back as you spend. Furthermore, you can use your credit card to establish a solid credit history, which opens doors for other financial products in the future — like personal loans!

Cash advances

A cash advance is a short-term loan you can take out against an upcoming paycheck or a line of credit. There are plenty of cash advances with high APRs and hefty fees attached, but fortunately, that’s not always the case. In fact, there are a number of established cash advance apps with no fees!

Nevertheless, it’s always wise to do your own research before pulling the trigger on a cash advance.

Business loan

If you need a loan specifically for costs associated with your small business, a business loan may be right for you. This option is limited to business purposes only, but as a result, it can help self-employed workers keep their personal and business finances separate.

To qualify for a business loan, be ready to provide lenders with multiple documents, from tax returns to projected financial statements, establishing your business earnings and your credibility as a prospective borrower.

Home equity loan/home equity line of credit

In some circumstances, self-employed workers who are also homeowners may want to consider a home equity loan or home equity line of credit versus a personal loan. These options both allow you to borrow from the equity in your home, but they operate in different ways and are better suited to different financing needs. Keep in mind, however, there are significant risks to using your home as collateral, so be sure to research alternatives first.

Why is it harder to get a personal loan when you’re self-employed?

How To Apply For A Personal Loan If You're Self-Employed - Why is it harder to get a personal loan when you're self-employed?

It all comes down to risk. On paper, self-employed individuals aren’t as reliable as full-time employees. Whether you’re financially stable or not, here’s what lenders see when your application arrives on their desk.

Lack of consistent income

Self-employed workers generally don’t have a single, consistent stream of income each month. Instead, it’s a little more like waves; sometimes the swells are larger, and in other seasons they’re slow and low. Unfortunately, when lenders see this type of income in a potential borrower, they get a little “sea-sick.”

When lenders consider offering a loan, they want to know they’ll get their money back with interest, and one of the methods they use to try and ensure repayment is verifying the prospective borrower’s income. If your earnings swing up and down, lenders are less confident in your ability to make loan payments on time and in full.

Taxable income is low

Inconsistency is one significant hurdle self-employed individuals need to clear to qualify for a personal loan, but another challenge these applicants face is the impact of their tax write-offs.

Self-employed individuals generally write off a significant portion of their income as business expenses. This is a smart move for tax purposes, but not ideal when you’re applying for a loan. To increase your eligibility for a personal loan, you want to report substantial income to assure lenders you can handle the IOU. Unfortunately, lenders won’t know you actually made $100,000 last year. They’ll see your taxable income, which could be $70,000, $60,000, or less.

Debt-to-income ratio can be high

Tax write-offs affect a lot more than the income level your lender sees, it also makes your debts look a little worse.

Your debt-to-income (DTI) ratio is another key factor lenders evaluate when determining your eligibility for a loan. It’s the percentage of your income used to cover your debts, and it should stay below 40% of your pretax monthly income — ideally 33%.

Using the illustration above, if you make roughly $100,000 in a year, and spend $30,000 repaying your debts, your DTI is 30%. However, since lenders typically check your taxable income, let’s say $70,000, that means your DTI looks more like 43%. That kind of discrepancy could make or break your chances of qualifying for a loan.

To see what your DTI is, check out MU30’s calculator below:


Whether you’d like to do some remodeling at home or purchase some new equipment for your business, personal loans can provide the perfect tool to get the job done. However, if you’re self-employed, you may encounter some roadblocks in the application process.

Thanks to factors like inconsistent income and various tax write-offs for business expenses, lenders require a little more work from their self-employed applicants to make sure they’re capable of covering monthly payments. Fortunately, getting a personal loan when you’re self-employed isn’t an unrealistic expectation.

To fast-track the application process, make sure you’re prepared with the proper documentation, including tax returns and bank statements. It also helps to have a solid credit history, ample savings, and even consistency in your career.

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About the author

Photo of MoneyUnder30 writer Kate Van Pelt
Total Articles: 51
Kate Van Pelt is a writer and editor based in the Pacific Northwest. She has a bachelor’s degree in business management and English and has established her professional career in marketing and research writing. Since 2015, Kate has created educational materials covering a variety of financial topics, from home loans and credit cards to retirement accounts and estate planning. She spends her free time thrift shopping, making cocktails, and enjoying the outdoors with her dogs, Vira and Elmer.