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Self-Employed Small Business Loans: The Essential Guide

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Securing business funding could be a game-changer for self-employed business owners, as it can provide capital for growth, sustaining operations, and more. Unfortunately, due to the nature of their businesses, self-employed individuals historically faced challenges when accessing business loans.

However, many self-employed people can now access small business loans, such as SBA, traditional, or online business loans. This guide explores what you need to know about self-employed small business loans, including your available options, the costs involved, the pros and cons, and how to apply.

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    What does being Self-Employed mean?

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    Self-employed business owners work independently, without a boss or company to report to. They are their own bosses responsible for managing their business operations and finances, and they don’t usually have employees.

    Types of self-employed businesses include:

    Sole Proprietor: Sole proprietors are individuals who run their own businesses and are considered self-employed. In a sole proprietorship, the individual is personally responsible for all aspects of the business, including profits, losses, and liabilities.

    Independent Contractor: Independent contractors are self-employed individuals who work on a project basis for various clients. They are not considered employees and are responsible for managing their taxes, benefits, and work schedules. Types of independent contractors include freelance writers, graphic designers, virtual assistants, photographers, consultants, web developers, and social media managers.

    Freelancer: Freelancers are self-employed individuals who offer their services to clients on a project-by-project basis. Unlike independent contractors, freelancers typically work for multiple clients at once and choose their locations and work hours. Freelancers can include graphic designers, writers, web developers, virtual assistants, and consultants.

    Fun Fact: The term “freelancer” originated from Sir Walter Scott’s novel Ivanhoe, where “free lances” were mercenary knights who fought for whoever paid them. So, freelancing today means wielding your skills like a modern-day knight, choosing your quests and clients.

    Self-Employed Business Taxation

    One of the primary distinctions for self-employed businesses is how they are taxed, which is typically different than for other business entity types. Self-employed individuals are subject to self-employment tax, including the employer and employee portions of Social Security and Medicare taxes.

    Other business entities, such as corporations or partnerships, may be subject to different tax rates and regulations depending on their structure and income. Self-employed workers should understand their tax obligations and consult with a tax professional to ensure compliance with the law.

    Can Self-Employed Business Owners access Small Business Loans?

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    Self-employed individuals can access small business loans, just like other business types. However, business loans for self-employed may differ in loan amounts and terms compared to loans for other entity types. These differences can stem from the variable income nature of self-employment.

    Self-employed people can utilize small business loans for various purposes, such as purchasing inventory, acquiring equipment, expanding their business, or smoothing out cash flow gaps. The flexibility in using these funds can significantly benefit self-employed entrepreneurs in growing their ventures.

    What are the best Self-Employed Small Business Loans?

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    Self-employed business owners could potentially access one of the following small business loan programs through UCS’s lender network.

    Business Term Loan

    • Funding amounts: $10k – $5 million.
    • Factor rates: Starting at 1-4% p/mo.
    • Terms: 3 months – 5 years.
    • Funding speed: 1-3 business days.

    Business term loans are a type of financing that provides a lump sum of money upfront, which is then repaid over a set term with fixed monthly payments. Businesses can use these for various purposes, such as purchasing equipment, expanding operations, or covering working capital needs. Self-employed individuals can benefit from business term loans to help grow their businesses and manage cash flow effectively.

    Business Line of Credit

    • Funding amounts: $1k – $1 million.
    • Factor rates: Starting at 1% p/mo.
    • Terms: Up to 36 months.
    • Funding speed: 1-3 business days.

    Business lines of credit are flexible financing options, allowing business owners to access funds up to a specified credit limit. You can draw funds from the credit line as needed and only pay interest on what you draw. As you repay the draw, the credit line replenishes, allowing you to draw funds and repay them like a credit card. This type of credit can help self-employed individuals manage cash flow fluctuations, cover unexpected expenses, and take advantage of growth opportunities without applying for a traditional loan each time.

    Equipment Financing

    • Funding amounts: Up to $5 million per piece of equipment.
    • Factor rates: Starting at 3.5%.
    • Terms: 1 – 10 years.
    • Funding speed: 3-10 business days.

    Equipment financing allows businesses to obtain necessary equipment through a loan or lease rather than paying for it upfront. This helps self-employed businesses by giving them access to expensive equipment without draining their cash reserves, allowing them to grow and expand their operations. For example, a freelance photographer can finance a high-quality camera instead of buying it outright, enabling them to take on more clients and increase their revenue.

    Invoice Factoring

    • Funding amounts: $10k – $10 million.
    • Factor rates: Starting at 1% p/mo.
    • Terms: Up to 24 months.
    • Funding speed: 1-2 weeks.

    Invoice factoring is a financial tool that involves selling accounts receivable to a third party at a discount in exchange for immediate cash. For example, a self-employed individual who provides services and issues invoices with payment terms of 30 days can use invoice factoring to receive some money upfront instead of waiting for the payment. This can help improve cash flow, cover immediate expenses, or invest in business growth opportunities.

    Merchant Cash Advance

    • Funding amounts: $5k – $1 million.
    • Factor rates: Starting at 1-6% p/mo.
    • Terms: 3 – 24 months.
    • Funding speed: 1-2 business days.

    A merchant cash advance (MCA) is a type of alternative funding where a business receives a lump sum payment in exchange for a percentage of its daily credit card sales. A self-employed individual, like a sole proprietor, could use an MCA to quickly access funds for business expenses without providing collateral or going through a lengthy approval process. This type of funding can benefit small business owners who need immediate cash flow but may not qualify for traditional loans.

    Revenue-Based Financing

    • Funding amounts: $5k – $5 million.
    • Factor rates: Starting at 1-6% p/mo.
    • Terms: 3 – 24 months.
    • Funding speed: 1-2 business days.

    Revenue-based financing (RBF) is a type of funding where a business receives capital repaid with a percentage of its future revenue. For example, a self-employed business owner could use RBF to access funds to expand their online store. The business owner would repay the financing company by giving them a percentage of their daily, weekly, or monthly revenue until the agreed-upon amount is paid back.

    SBA Loans

    • Funding amounts: $50k – $5.5 million.
    • Factor rates: Starting at Prime + 2.75%.
    • Terms: 10 – 25 years.
    • Funding speed: 8-12 weeks.

    SBA loans are often considered the gold standard of small business financing, as they offer high borrowing amounts at low rates and extended terms. The US Small Business Administration (SBA) partially guarantees these loans, reducing the risk for lenders. Businesses can use the loan funds for working capital, equipment purchases, real estate acquisition, or other business purposes.

    Self-employed individuals can access an SBA loan as long as they meet the SBA’s eligibility criteria and the lender’s qualifications. Some of the most popular self-employed SBA loans include the SBA 7(a) loan, SBA Microloan, and SBA Express loan.

    Working Capital Loans

    • Funding amounts: $1k – $5 million.
    • Factor rates: Starting at Prime + 2.75%.
    • Terms: 3 months – 10 years.
    • Funding speed: 1-3 business days.

    Working capital loans are a type of financing that small businesses use to cover their day-to-day operational expenses. These loans fund operating activities such as payroll, inventory purchases, and rent payments. They can help businesses maintain cash flow and continue operating smoothly during periods of financial strain.

    What are the qualifications for Self-Employed Small Business Loans?

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    Lenders evaluate several criteria for self-employed small business loan eligibility.

    Credit Score: Lenders use credit scores to assess the risk of lending to a self-employed individual and determine the loan terms, such as interest rates and loan amounts. A higher personal credit score typically leads to more favorable loan terms, while a lower credit score may result in higher interest rates or loan denials.

    Revenue: Revenue is one of the most critical factors determining loan eligibility for self-employed business owners. Lenders typically assess the business’s ability to repay the loan based on its revenue. Higher revenue demonstrates financial stability and increases the chances of approval for a small business loan.

    Time in Business: Many small business lenders often look at the length of time the self-employed individual has been operating to assess its stability and likelihood of repayment. A longer track record of successful operation can increase the chances of obtaining financing.

    Collateral: Collateral is often required for self-employed business loans to offset the perceived risk of lending to individuals with fluctuating income or less stable financial histories. This collateral can be in the form of personal assets such as real estate, vehicles, or savings accounts, assuring lenders that they can recoup their funds in case of default. By requiring collateral, lenders can mitigate the risk associated with self-employed borrowers and make the loan terms more favorable.

    Documentation: When applying for self-employed small business loans, lenders may require additional documentation to verify income and business stability since self-employed individuals may not have consistent pay stubs or financial records. Self-employed individuals should maintain detailed financial records, have a solid business plan, and demonstrate a steady income history to improve their chances of getting approved.

    What are the benefits of Small Business Loans for Self-Employed?

    Small business loans for self-employed individuals offer financial assistance for expanding operations or purchasing equipment. These loans provide flexible repayment terms and competitive interest rates, helping entrepreneurs save money.

    Timely repayments can improve credit scores, leading to better loan terms in the future. With small business loans, self-employed individuals can seize growth opportunities, invest in marketing, or hire staff to take their businesses to the next level.

    What are the drawbacks of Small Business Loans for Self-Employed?

    Some drawbacks of self-employed small business loans include higher interest rates than traditional loans, stricter eligibility requirements, and the need to provide extensive documentation to prove income and business viability. Additionally, self-employed individuals may have difficulty securing large loan amounts due to fluctuating income or lack of collateral.

    This can limit the growth opportunities for their businesses and make it harder to access the funding needed to expand or invest in new ventures. Overall, self-employed small business loans can be more challenging and have additional hurdles that traditional borrowers may not face.

    Self-Employed Small Business Loan Pros & Cons

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    • Access to capital for business growth.
    • Can help with cash flow during slow periods.
    • Opportunity to expand operations or invest in new equipment.


    • Higher interest rates compared to traditional loans.
    • Stricter eligibility requirements for self-employed individuals.
    • Risk of personal assets being used as collateral.

    How can I apply for a Self-Employed Small Business Loan?

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    Self-employed individuals can apply for a small business loan through our lender network by following these steps:

    Step 1 – Apply online in a few minutes: Use our simple online application to submit a request for business funding. If you need any help along the way, give us a call, chat, or email.

    Step 2 – Get expert advice on loan options: An expert, knowledgeable account executive will walk you through all the fine details and requirements. This is to ensure you have all the info you need.

    Step 3 – Finalize your application and get funded: Once your funding has been approved and closed, the lender sends the funds to your account so you can start using them to grow your business.

    Frequently Asked Questions

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    Here are the most common questions about self-employed small business loans.

    What are the costs of Self-Employed Small Business Loans?

    There are various costs to consider for self-employed small business loans.

    Interest Rates: Interest rates for self-employed business loans can vary depending on the lender, the borrower’s creditworthiness, and the loan terms. Typically, interest rates for self-employed business loans may be higher than traditional loans due to the perceived higher risk associated with self-employment. It’s essential for self-employed individuals to shop around and compare offers to find the best interest rate for their small business loan.

    Fees: Small business loan fees can include origination fees, application fees, and documentation fees. Self-employed individuals should carefully review the terms and conditions of small business loans to understand all potential fees involved.

    Closing Costs: Potential closing costs for self-employed small business loans may include appraisal, underwriting, and title insurance fees. These costs can vary depending on the lender and the size of the loan, so it’s essential for self-employed individuals to carefully review all potential closing costs before finalizing a loan agreement.

    Other Costs:

    Small business owners may also incur costs such as prepayment penalties and late payment fees. Before committing to borrowing money for your business, it’s important to carefully review the terms and conditions of the loan agreement to understand all potential costs involved.

    What lenders offer Self-Employed Small Business Loans?

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    There are several lender options for self-employed small business loans.

    Traditional Lenders: Banks and credit unions offer self-employed small business loans with lower interest rates than alternative lenders. However, these loans are much more challenging to qualify for, especially for self-employed individuals. Despite the lower rates, the stringent qualification process for a business bank loan can be a barrier for many self-employed borrowers.

    Alternative Lenders: Alternative lenders, such as nonbank online lenders, offer self-employed small business loans with more flexible requirements and faster approval processes than traditional bank loans. These lenders cater to the needs of self-employed individuals by considering factors beyond just credit scores, making it easier for small businesses to access online loans to grow and succeed.

    Small Business Loan Marketplaces: Another option is to work with a small business loan marketplace (like UCS). A business loan broker can help self-employed individuals find the best loan options for their needs from lenders where they’re most likely to qualify.

    What if I can’t get a Small Business Loan?

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    Some self-employed individuals won’t be able to access small business loans for various reasons, whether creditworthiness, low or inconsistent revenue, documentation issues, or lender preferences.

    In these cases, you can consider funding your operation through other means. Here are a few options.

    Business Credit Cards: Business credit cards can be a viable alternative for self-employed individuals who can’t qualify for a small business loan. They offer a line of credit that can be used for business expenses, helping to manage cash flow and build credit history for the business.

    Personal Loans: Self-employed individuals who can’t qualify for a small business loan may consider applying for a personal loan instead. Personal loans can provide the necessary funds for business expenses until you are eligible for business funding.

    Can I get a Self-Employed Small Business Loan with Bad Credit?

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    Self-employed individuals already have difficulty accessing business loans, and bad credit can make it much more challenging. However, there are still options for bad credit business loans from specialized lenders.

    Bad credit business loans through UCS’s lender network have the following features:

    • Funding amounts: $1k – $5 million.
    • Factor rates: Starting at 1-6% p/mo.
    • Terms: 3 months – 5 years.
    • Funding speed: 1-3 business days.

    These loans can provide self-employed individuals the funding they need to grow their small businesses, even if traditional lenders have turned them down. Business loans for bad credit often offer quick and easy applications with fast funding times. Timely payments can help improve credit scores.

    However, drawbacks may include higher interest rates, shorter repayment terms, and stricter eligibility requirements than loans for those with good credit. It’s essential to carefully consider the terms and conditions before applying for a bad credit business loan.

    Self-Employed Business Loans – Final Thoughts

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    Self-employed individuals have various loan options available to help grow their businesses. Entrepreneurs should consider their financial needs and goals carefully before selecting a loan product.

    By comparing rates and terms from different lenders, self-employed individuals can find the best financing option for their specific circumstances. The right loan can help take your independent business to new heights.

    Contact us if you have more questions or want to apply for a small business loan. Our alternative funding experts can help you find the most advantageous financing options for your business.

    We will help you grow your small business.

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        At UCS, we understand the value of your time and want to ensure that your application has a great chance of approval. Please take note of the following details before applying:
        • To be eligible, it’s necessary to have a business bank account with a well-established U.S. bank such as Chase, Wells Fargo, Bank of America, Citibank, or other major banks. Unfortunately, online-based bank accounts like PayPal, Chime, CashApp, etc., are not permitted.
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