Written by Just because you're self-employed doesn't mean you can't get a personal loan. Whether you need extra funds for home renovations, debt consolidation or even to help pay for your next holiday, Savvy can help you find the solution you're looking for! With a wide range of lenders and a simple online application process, you can get the ball rolling with us today!
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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 3.00% p.a. or more to compensate the lender for the increased risk.
| Type of loan | Interest rate | Total interest payable |
|---|---|---|
|
Low doc |
10.00% p.a. |
$9,862 |
|
Full doc |
7.00% p.a. |
$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.
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.
The types of Personal Loans
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).
Credit report
It’s also important to review your credit file prior to submitting your application for financing. Your past borrowing experience is represented by your credit score, which lenders look to as an indication of your ability to repay debts promptly and reliably. The higher your credit score, the more confidence your lender will have in you as a borrower. You can improve your score by paying off outstanding debts and lowering limits on your credit cards. You're free to check your credit report free of charge every three months in Australia.
Documents
One way to speed up the personal loan application process is to have all of your relevant documents on hand before submitting. These include:
- Personal ID in the form of your driver’s licence or passport
- Your two most recent payslips, or your last two years’ worth of tax returns if you’re self-employed
- Proof of address
- Information on any outstanding liabilities such as loans
- May be required to provide your employment contract and 90 days of bank statements
Review fees and charges
Of course, you should always compare the various fees which may apply to your personal loan also. These can include:
- Ongoing fees: $0 to $10 per month
- Establishment fee: $0 to $595
- Early repayment fee: up to $600 to $900, depending on loan size and term
- Late payment fees: $15 to $35
Apply for your personal loan online
Personal loan eligibility and documentation
Common self-employed personal loan questions
The amount you can borrow depends on your lender’s lending criteria and how much you can afford to repay. However, most lenders have minimum personal loan amounts of $5,000 and a maximum of $75,000.
Use our repayment calculator to find out your repayments for different loan amounts, interest rates, terms and repayment schedules.
A comparison rate includes both the interest rate on your finance and the cost of any associated fees and charges. Lenders in Australia are legally required to tell you the comparison rate before you enter into any finance agreement.
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 and/or be asked to provide a guarantor.
That depends on your needs and financial situation. Personal finance terms usually range from one to seven years. Longer terms will have lower repayments for the same loan amount at the same interest rate than shorter terms will. But you’ll also pay more interest with a longer term.
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.
