How to get a small business loan when self employed

If you’re working for yourself, money can get tight — especially when you’re trying to grow your business. A business loan for self-employed people can give you the capital needed to cover short- and long-term business goals. You can use it for working capital expenses or any other business-related need, such as investing in marketing, equipment or other products and services that will help you expand.

You don’t need to have incorporated your business or established an LLC to get financing, either. Have you ever wondered, “Can I get a business loan as a sole proprietor?” The answer is a resounding yes. In 2024 alone, the Small Business Administration backed more than 3,000 loans for sole props, to the tune of over $630 million.

Getting a self-employed business loan gets easier when you know what it entails and where to look. We’re here to help with precisely that. Here are the steps to take to get a business loan as a self-employed individual.

Be able to prove steady revenue

Your level of revenue will play a role in getting approved and for how much. Most lenders are looking for at least $100,000 in annual revenue, but some lenders take less. Banks tend to want to see higher revenue ($150,000+), while online lenders will generally have lower requirements.

The more revenue you can prove, the more likely the lender is to feel that you can pay back what you borrow. The keys here, then, lie in not just generating the revenue, but also in tracking it. Make sure you have a reliable way that you’re monitoring paid invoices, credit card sales or any other revenue channels you have.

As your business matures, your tax statements become a huge help here. Your tax returns include your gross and net revenue, and turning them over to lenders can validate your candidacy for a self-employed business loan. That’s true even if you file your business earnings under your personal taxes (i.e., if you operate as a sole proprietorship).

Go with a self-employed friendly lender

A quick internet search should point you in the direction of financial institutions willing to offer a self-employed business loan. PNC, Fibre Federal Credit Union and Discover all have dedicated landing pages geared toward helping people who work for themselves find financing, for example.

If you’re struggling to get a self-employed business loan, look for a lender that’s backed by the SBA. Because SBA loans are guaranteed by the federal government, the lender gets help recouping some of their losses if you don’t repay what you borrow. This makes the lender more open to underwriting a loan they may deem somewhat risky, like a business loan for self-employed folks.

Offer collateral

Since backing the loan with assets guarantees that you can repay, lenders look more favorably on a loan application secured by collateral.

Some things you can put up for collateral for your business loan include:

• Any company real estate, like your office location
• Business equipment
• Company vehicles
• Personal assets like your house or investments
• Inventory

In some cases, you can also pledge future earnings as collateral for the loan. With invoice factoring, for example, you can get an advance for a percentage of unpaid invoices, which the lender then collects. (Be advised, though, that invoice factoring usually comes with unfavorable terms compared to other small business loans.)

Gather the required documents

As a freelancer or self-employed business owner, you may not have all the same documents as an employer-based business. To show that you do get revenue from self-employment, you’ll usually need:

• Personal bank statements
• Business bank statements, if separate
• Tax returns (either your business tax returns or your personal ones with Schedule C or SE included, depending on how you file)
• 1099 forms
• Business financial statements, such as a balance sheet or reports from accounting software
• LLC formation or incorporation documents, if applicable

Choose the right kind of loan for your needs

Freelancers and self-employed business owners can get most of the same business loans as other businesses. You can choose the type of loan that best matches your purpose for funding.

• Bank loans: Best for low rates

• Online business loans: Best for accessibility

• Business lines of credit: Best for flexible spending

• SBA loans: Best for repayment terms

• Microloans: Best for underserved communities

• Business credit cards: Best for short-term lending

• Personal loans: Best for new businesses

• Merchant cash advance: Best for emergencies

Compare offers to make sure you’re getting a good deal

Since there are so many different ways to get a business loan for self-employed people, just finding out which type of financing is right is already a lot of work. Don’t stop there, though. To make sure you don’t overpay in interest or fees, take a few more steps.

Specifically, apply with at least three lenders. This way, you can compare rates and terms, illuminating which self-employed business loan will be most advantageous for you and your company.

As you look at loans, compare annual percentage rates (APRs). These represent how much you’ll pay each year to maintain the loan, including not just interest but also recurring fees. Looking at each loan’s APR helps you compare apples to apples. ‘

Then, compare that APR against the average rate for the kind of business loan you’re getting. It’s normal for your rate to be a little higher because you’re somewhat risky as a small business, especially if your company is new.

Bottom line

When you’re self-employed, your main challenge is growing revenue to serve more customers — often with less capital than other businesses. Getting a business loan can give you the boost you need as long as you meet the lender’s requirements.

Fortunately, those requirements vary depending on the lender and the type of financing you’re getting. Exploring your options makes it easier to find the right business loan for self-employed people in your specific situation.

Frequently asked questions

• How long do you have to be self-employed to get a loan?

• Can I get a business loan if I’m self-employed?

• What income do lenders look at for self-employed people?

• Are independent contractors eligible for SBA loans?