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Personal Loans For The Self-Employed: How To Apply

Victoria Araj8-Minute Read
UPDATED: December 21, 2023


Getting any kind of loan usually requires showing proof of income so lenders feel assured a borrower has a steady salary that can keep them making their monthly payments on time. If a borrower is self-employed and has an irregular income or cash flow, it can be hard for them to prove they’re ready to take on a loan.

Let’s walk through how a self-employed person can show their proof of income and confront potential roadblocks that might impede their ability to secure a loan.

Options For Self-Employed Loans

Whether you need a loan for personal matters or small-business expenses, you’ll find some lenders who will consider self-employed workers. Self-employed borrowers can be eligible for loan types such as:

  • Small-business loans: A small-business loan can be used for business expenses and startup costs. If your financing needs are for your business, you could get a loan this way.
  • SBA microloans: The U.S. Small Business Administration (SBA) offers microloans under $50,000 to employers looking to finance business expenses. You may be eligible for an SBA microloan even if you’re the sole proprietor or only employee of your business.
  • Personal loans: You can use a personal loan for almost anything, including debt consolidation, home improvements and small-business expenses. A lender’s approval largely depends on a borrower’s credit score and debt-to-income ratio (DTI).

A business loan is strictly intended for business purposes and can be used by self-employed business owners. However, business loans aren’t flexible and can’t be used to fund personal projects as a personal loan can.

If you need a small amount of money to cover an unexpected business cost, you might be able to get an SBA microloan with a local bank or credit union, or perhaps you can qualify for a small-business loan with an online lender. Both of these options come with relatively flexible eligibility requirements, so you might have an easier time securing approval.

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How Do Self-Employed Workers Get Loans?

Since a self-employed person may not make an income as conventional as that of someone on a company salary, being self-employed means a few additional steps may be required to qualify for a loan.

Self-Employed Loan Requirements

To get a loan as a self-employed person, you might need to gather more information than someone who isn’t self-employed. This information will likely include:

  • Proof of income: Being able to show sufficient, stable income from self-employment is important, but it’s okay if you have some slight fluctuations in your income every now and then. Lenders ultimately look for an ongoing, upward trend, though.
  • Credit history: Lenders want to see that an applicant has a good or excellent credit score and a history of repaying debts. They’ll look at the type, age, limits, use and status of existing credit accounts, and they may take note of how often an applicant has applied for new credit within the past year.
  • Employment history: Lenders may also want to see that a loan applicant has steady work and has been self-employed in the same industry for at least 2 years. It’s possible for an applicant with 1 year of experience to be approved for a loan if they present enough information, but lenders can deem someone with a shorter history of employment as a financial risk.
  • Proof of cash reserves: Lenders might look to see if an applicant has cash reserves or an emergency fund that they could use to pay bills in months when income might be lower.

Showing Proof Of Income When Self-Employed

Proof of income is a very important part of the loan approval process. If you're self-employed, here are some acceptable proofs of income:

  • Tax statements: Since you most likely don’t have pay stubs or W-2s from an employer, you’ll have to use a tax statement from the previous year (1099) to prove your wages and taxes. Because tax statements are legal documents, many lenders see them as the most reliable proof of income for self-employed individuals.
  • Tax returns: Your lender could also ask to see your previous federal tax returns, such as a Schedule C or Schedule SE, to help verify your income.
  • Bank account statements: If an applicant has a history of regular deposits, bank statements can show a stable flow of income. Just make sure to keep your business expenses separate from your personal ones.
  • Profit and loss statements: A profit-and-loss statement (or ledger documentation) is a summary of your costs, expenses and revenues. This can show a lender more about your income. Be sure to ask your lender whether these documents are required.
  • Social Security benefits statements: A Social Security benefits statement shows an applicant the benefits they’ll receive when they retire. You can access your statement through the Social Security Administration.
  • Court-ordered agreements: Examples of court-ordered agreements can include alimony or child support. You can request a copy of these agreements from the court.

Applying With A Co-Signer

If you’re struggling to qualify for a personal loan even with your proof of income, consider a co-signer for your loan. Having a friend or family member with a low DTI co-sign the loan with you can strengthen your application in the eyes of a lender since they’ll consider the co-signer’s income, too.

Rocket Loans℠ doesn’t currently offer the option to co-sign on loans.

How To Apply For A Personal Loan While Self-Employed

Here are the steps to getting a personal loan as a self-employed applicant:

  1. Checking your credit: You’ll want to start your loan search by looking over your credit report to know where your creditworthiness stands. A personal loan with a good interest rate and term will likely require a credit score of at least 650.
  2. Comparing multiple lenders: Consider various lenders and loan offers and get prequalified to see your potential rate and term. Prequalification will involve a soft credit check, which won’t affect your credit score.
  3. Getting your financial documents together: Gather the necessary documents for your application, including any additional documents required of a self-employed borrower. As mentioned, these documents can include tax statements and returns, bank statements, profit-and-loss statements and more.
  4. Submitting a full application: With your lender chosen and documents all together, submit your application and wait to hear back. It may be a few business days before you get an answer from the lender.
  5. Receiving your funds: If your application is approved, you’ll typically receive your funds in your account in 1 – 7 business days. After that, make sure you make your monthly payments in full and on time.

Challenges Of Getting A Self-Employed Loan

Even if a self-employed loan applicant can show proof of income to a lender, they can still face challenges when applying for a personal loan.

Personal loans for self-employed applicants can present the common challenges we’ll explore next. 

Lower Taxable Income

Many self-employed borrowers often face the same hurdle when applying for a personal loan: They claim too much of their earnings as business expenses on their income taxes.

By claiming more expenses on their tax returns, self-employed borrowers reduce their taxable income. But lenders must base their lending decision on the final income that borrowers report on their taxes. Often, this income is so low that borrowers struggle to qualify for a personal loan or mortgage.

Let’s say your business earns $100,000 in revenue in a given year. When it’s time to pay your taxes, you claim $50,000 worth of business expenses. This reduces your taxable income – the income you report to the Internal Revenue Service (IRS) – to $50,000, leaving you with a far smaller tax bill. When deciding whether to approve your loan, lenders will look at this final income figure rather than the $100,000 your business earned.

Major Income Inconsistencies

A potential roadblock for some self-employed borrowers is having inconsistent income. Lenders prefer not to see that you’ve earned $60,000 in 1 year and $120,000 in the next. They may worry that while you’ll be able to make your payments during the up years, you won’t during any down years your business might experience.

If you can provide lenders with several years’ worth of tax returns all showing that your self-employment income is reliably high enough for you to repay a loan, you have better odds of qualifying for a personal loan.

Self-Employed Loan Alternatives

If, for any reason, you’re unable to get or decide against a personal loan, some other loan options may suit your needs. Let’s take a look at a few of them.

Credit Cards With A 0% APR Promotion

Credit cards can loan you money when you need it, but their repayments can come with a high interest rate. Some card issuers offer a 0% annual percentage rate (APR) promotional period when you sign up for a new card, giving you 6 – 21 months of interest-free repayments. You should be confident you can repay your full balance before the promotional period ends, though. If you can’t, you’ll get stuck paying a high interest rate.

Cash Advances

A credit card will allow you to take out a short-term loan or cash advance. Cash advances are useful for situations where you need cash in hand and can’t just swipe your card. But be on the lookout, because the APR for a cash advance can be higher than the APR for regular purchases.

Home Equity Loans Or HELOCs

If you own a house, you might be able to borrow from the equity you’ve built through a home equity loan or a home equity line of credit (HELOC). A home equity loan has a fixed loan term and gives borrowers the money in one lump sum. On the other hand, a HELOC lets borrowers make payments only on the amount borrowed.

FAQs About Loans For Self-Employed Borrowers

It may not be easy finding a personal loan as someone who’s self-employed, but doing thorough research and ensuring you have enough documentation can help you find a loan program that works for your situation.

Use the answers to these frequently asked questions to learn more about personal loans for the self-employed.

Can I get any loans if I’m self-employed, with no proof of income?

Proof of income is an important indicator of a borrower’s creditworthiness, so few loan options are available to an applicant who can’t provide records of their income. Pawn shop loans may allow you to exchange a valuable item as collateral for the lender to keep until you can repay the loan in place of proof of income, but then you risk losing that item if you can’t pay the loan back.

Are there loans for self-employed borrowers with bad credit?

Having good credit can qualify you for the best rate and repayment term for personal loans and other types of loans. Payday loan lenders won’t look at your credit history, but their fees and interest rates can cost you more in the long run. You’re better off taking steps to improve your credit so you can qualify for better rates.

Can self-employed freelance workers get personal loans?

Freelance workers can qualify for a personal loan if they can provide proof of income. They may also want to acquire a certificate of employment from their current client or clients, if possible.

Final Thoughts

Even if you’re self-employed, it’s possible to qualify for a personal loan or another type of loan. The key is being able to show lenders that your income stream is steady each year and high enough to pay back the loan. This will give lenders confidence that you can make your payments on time each month.

If you want to get the personal loan application process started, apply online today with Rocket Loans.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.