Written by Being your own boss can be rewarding, but how does it work when you want to borrow money? As a self-employed worker, you may face stricter requirements when applying for personal loans. However, while the application process might look a little different, it's still possible to get the finance you need. Savvy can help streamline the process, connecting you with lenders that can offer you competitive loan options tailored to your circumstances.
How do self-employed personal loans differ from regular personal loans?
You may still qualify for a standard personal loan as a sole trader, freelancer or contractor – especially if you’ve been trading for a while and can show a reliable income with solid financial records – but the application process is typically more complex.
This is because lenders may see your income as less predictable than a salaried employee, making it harder for them to assess your ability to repay the loan. As a result, you may face:
- Higher interest rates
- Lower borrowing limits
- More documentation requirements
- Additional fees
Lenders will still want to see that you can comfortably manage your repayments. In place of payslips, you’ll usually need to provide recent tax returns, business activity statements (BAS) or business bank account records to demonstrate your earnings.
If you can’t supply these documents, another option might be a low doc personal loan. This is a type of personal loan designed for borrowers who can’t provide the usual documentation, instead allowing you to apply with alternative proof of income, like an accountant’s letter. However, while you may stand a greater chance of approval, they generally come with higher interest rates and stricter conditions than a standard ‘full doc’ personal loan. Here's an example of how that higher interest rate could impact your repayment amount:
| Type of loan | Interest rate | Total interest payable |
|---|---|---|
|
Low doc |
10.00% p.a. |
$9,862 |
|
Full doc |
7.00% p.a. |
$6,695 |
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How long do I have to be self-employed to get a personal loan?
Most lenders prefer you to have been self-employed for at least 12 months before applying for a personal loan. This gives them enough financial history to assess your income and stability.
Some lenders may require two full years of tax returns, particularly if you’re applying for a larger loan or want access to lower rates. The longer you’ve been self-employed – and the more consistent your income – the better your chances of approval.
If your income fluctuates a lot or your business is still in its early stages, they may view your application as higher risk.
Is a personal loan or business loan better for self-employed people?
If you’re running a business, you may be eligible for an unsecured business loan. These loans are designed specifically for business use, with higher borrowing limits than a personal loan. However, they must be used for business-related expenses only, such as equipment, stock or cash flow.
While both personal and business loans could give you access to the funds you need, they serve different purposes. Here’s how they compare:
| Personal loan | Business loan | |
|---|---|---|
|
Purpose |
Flexible, all-purpose funding |
Business use only |
|
Loan amount |
Up to $75,000 |
Up to $500,000 or more |
|
Loan term |
1 – 7 years |
1 – 30 years |
|
Interest rates |
Often higher, especially for low doc applicants |
Can be lower for established businesses |
|
Security |
Can be secured or unsecured |
Can be secured or unsecured |
|
Eligibility |
Based on personal income and credit |
Based on business income, trading history and business and personal credit |
The right choice depends on your needs and circumstances. A personal loan may be the better option if you're borrowing a smaller amount, want flexibility in how the funds are used or don’t have an extensive business history. On the other hand, a business loan is more suitable if the funds will be used strictly for business purposes and you need access to a larger amount. As with personal loans, you may be eligible for a low doc business loan if you lack the necessary financial records.
What documents do you need as a self-employed borrower?
As a self-employed applicant, you’ll typically need to provide more paperwork than someone who is PAYG-employed, as lenders will want to verify your income and assess your ability to manage repayments.
As well as standard personal loan documentation like government-issued ID, lenders will also request the following documentation:
- Recent tax returns
- ATO-issued notice of assessment
- Business and personal bank account statements
In most cases, lenders also expect your ABN to have been active for at least 12 months. The more history and financial records you can show, the better your chances of approval.
If you’re newly self-employed or can’t provide this documentation, a low doc allows you to submit alternative proof of income, such as:
- A signed income declaration
- An accountant’s letter
- BAS
- Evidence of GST registration
- Your ABN
Income isn’t the only factor lenders assess. Your credit score also plays a key role in determining your eligibility and the interest rate you're offered. The higher your credit score, the more confidence a lender will have in your ability to repay the loan. It’s important to monitor your credit file and take steps to improve your score, for example by paying off outstanding debts, making repayments on time and reducing credit card limits where possible.
Personal loan repayment calculator
It’s important to have an idea of what different loans might cost you overall before you apply. Fortunately, Savvy’s personal loan repayment calculator is simple to use and tells you everything you need to know about how much different offers might add up to overall based on a variety of different factors.
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Common self-employed personal loan questions
Yes, it’s possible to get a bad credit loan, but your chances of having your application declined are also higher. If you are approved, you will have stricter finance terms and conditions. For example, you will usually be charged a higher interest rate.
If you have a fluctuating income running your own business, make sure you eliminate or reduce any non-essential expenses. If there are weeks when you earn more, use your extra funds to make additional repayments. This will allow you to get ahead. Some lenders will then allow you to make lower repayments in the months where your cash flow isn’t as high.
If you close your business, you are still responsible for repaying the loan according to the agreed-upon terms, regardless of your business status. If your business income was the primary source for repaying the loan, you'll need to explore other income sources to ensure you can continue making payments. If you're struggling to meet your repayments, it’s important to communicate with your lender as they may offer options such as loan restructuring or temporary hardship assistance.
Yes – guarantors guarantee the repayment of a loan on your behalf, meaning they’ll be required to pay it if you aren’t able to do so. This is particularly useful if you’re starting your own business, which is seen as risky in terms of your ability to consistently repay a loan, as your guarantor will instil more confidence in your lender.
Yes – and applying for one will improve your chances of being approved. It will also help you to get finance on better terms and conditions because it lowers the lender’s risk. A secured loan requires you to offer an asset as collateral security to the lender, such as your vehicle. However, if you don’t make your repayments, the lender can legally repossess it and sell it to recover your debt.
