Personal Loans for Self-Employed Workers
Self-employed and wondering if you could get a personal loan? Explore your personal loan options with Savvy.
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The features of self-employed personal loans
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You can fix your interest rate across your loan term, enabling you to lock in an affordable rate at the beginning and guarantee it remains the same across your term.
Choose to repay over one to seven years
By selecting a period over which to repay your loan, you have a say in the affordability and cost of your personal loan by shaping the cost of each instalment.
Borrow up to $75,000
Personal loans are highly flexible in how they can be used, with amounts ranging from as little as $2,000 all the way up to $75,000, making them suitable for many purposes.
Get approved with your last two tax returns
Instead of utilising a payslip as part of your personal loan application, you can supply your lender with the two most recent years’ worth of tax returns.
Consolidate your outstanding debts
One of the many reasons you may wish to take out a personal loan is to cover outstanding loan debt, which will help you bring it under one single payment to make it more manageable.
Bad credit options available
Even if you have a bad credit score, whether that be through setting up your business or otherwise, there are bad credit personal loan options available to you.
Instant approval and rapid fund transfer
Your loan application can be approved in just 60 seconds after submission, with funds able to land in your account in as few as 24 hours thereafter.
Diverse accepted income
If you earn other income from part-time or casual employment, or receive benefits from Centrelink, we can help you compare flexible lenders who can work with your situation.
Types of personal loan
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Self employed personal loans explained
Is it more difficult to get a personal loan for self-employed people?
It's not necessarily more difficult, but you'll face some different application requirements. Lenders may view personal loans for self-employed people as being high-risk if you've only been running your business for a relatively short period of time. Doing so means you don't necessarily have the luxury of a stable income in the same way as a pay as you go (PAYG) employee.
The main concern of a lender when assessing any finance application is that the borrower will make their repayments. As a self-employed person, you need to find appropriate documentation to demonstrate that is possible. You can’t just show your regular payslips from your employer as employees can.
What documentation do you need to apply for a personal loan for self-employed people?
You need to provide as much evidence of your income and your ability to repay the loan as possible. This should include your most recent:
- tax returns
- financial statements for your business
Providing this information for the past two or three financial years will help the lender assess your application. Depending on their lending policy, lenders may take an average of the income you’ve earned over that period. They may even take a conservative approach and use the lowest figure.
Your business financial statements should include your income statement, balance sheet and business activity statements (BAS). Ideally, these statements should have been prepared by an accountant.
Are ‘low doc’ or ‘no doc’ options available as personal loans for self-employed people?
Some lenders may accept ‘low doc’ or ‘no doc’ personal loan for self-employed applications. ‘Low doc’ is an abbreviation for ‘low documentation’. ‘No doc’ is an abbreviation for ‘no documentation’.
If you apply for one of these loans, you’ll usually have to sign a declaration of the income statement. You do this instead of providing the standard documentation typically required. You may also need to supply:
- an accountant’s letter,
- your ABN number,
- your GST registration, and
- any BAS that you can.
However, you should only apply for this type of finance if you can’t provide the standard documentation. ‘Low doc’ and ‘no-doc’ finance has higher interest rates than standard personal loans for self-employed people.
The table below compares ‘low doc’ and ‘full doc’ loan interest on a $25,000 debt over seven years. ‘Low doc’ finance usually has a loading of 3% or more to compensate the lender for the increased risk.
| Type of loan | Interest rate | Total interest payable |
|---|---|---|
|
Low doc |
10% |
$9,862 |
|
Full doc |
7% |
$6,695 |
Is a secured personal loan for self-employed people an option?
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. For example, your vehicle on a car loan. If you don’t make your repayments, the lender can legally repossess your car. They can then sell it to recover your debt.
An unsecured loan is your other option. It doesn’t require you to put up an asset as collateral security. However, it’s important to understand that unsecured finance interest rates are higher. This compensates the lender for the increased risk.
What’s the difference between a personal loan and business loan?
Business owners may also look to unsecured business loans when it comes to obtaining finance. These work in a similar way to personal loans but hold several key differences. Borrowing ranges are far greater for these loans, with amounts ranging up to $300,000, but their usage is limited to business purposes only. This stands in contrast to a personal loan, which can be used for both business and personal purposes. If you’re only looking for a smaller loan amount and have a strong personal credit score to fall back on, though, you might find that a personal loan is the best option for you.
Can I use a business overdraft instead?
You can – a business overdraft on your account is another finance option that sole traders may look to take advantage of. These essentially function as a personal loan attached to your bank account but allow you to withdraw money beyond $0 up to a pre-approved limit whenever you like. You’ll only pay interest on the amount you withdraw and won’t have any set repayment schedule. However, these often come with higher interest rates than loans, so they may be more suitable for smaller amounts you can quickly access and repay.
Can a guarantor help my application if I’m starting up a business?
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.
Ways to maximise your personal loan borrowing power
Apply for a full doc loan
A full doc loan is the same as any other personal loan in terms of the way that they’re assessed by lenders. What this means is that you meet all of the right loan criteria, but you’ll submit your last two years’ worth of tax returns in place of payslips (which self-employed workers don’t receive).
As this is a standard personal loan with no other caveats, this is one of the most effective ways to secure a higher loan amount.
Attach security to your loan
Opting for security on your personal loan will likely increase your potential borrowing power to $100,000. The security required will be an asset such as a car, boat, caravan or another vehicle, which is designed to add a safety blanket to your agreement in the unlikely event that you fully default on your loan.
Your borrowing power is still contingent on the maximum amount you can comfortably afford, though.
Hold a strong personal credit score
If a lender can review your credit file and come away feeling confident that you’re responsible and capable of repaying the loan you’re requesting, you’re likely to be approved for close to your maximum borrowing capacity. This is because your score indicates your reliability servicing debt in the past, whether that be other loans or household bills.
The lowest rates and fees are reserved for customers with good to excellent credit, as are the largest loans.
Earn a consistent, comfortable income
A business earning a consistent and comfortable income for you will also be a major factor in the amount you’re approved for. This is because lenders don’t want to leave anything up to chance when it comes to whether you’ll be able to keep on top of your repayments.
If your business has exhibited sudden and marked drops in revenue over the past year, for instance, your lender is less likely to grant a loan for a large sum.
Cut down on expenses where you can
Finally, increasing your disposable income will give you more room to take on larger repayments, and more significant loan sums as a result. If there are expenses that are cutting into your monthly earnings, such as subscriptions and fees for services you hardly use, it’s worth assessing whether you need them.
Even insignificant changes month-to-month can increase your borrowing power.
Common self-employed personal loan questions
Helpful personal loan guides
Still looking for the right personal loan?
Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.
