Loans For Freelance Businesses: Your 10 Best Options
As a freelancer, you already know the benefits of self-employment. The only boss you have is yourself. You get to set your hours and select the clients and projects you take on. You have the freedom to do what you love while also earning a living.
The life of a freelancer isn’t without its challenges, though. One of those challenges? Finding the funds you need to grow your business, cover day-to-day operating costs, purchase needed equipment, and pay other expenses.
In an ideal world, you would be able to draw the funds you need from your own checking account, but sometimes, you need a financial helping hand. In this article, we’ll explore the best business loans for freelancers. Whether you need a loan to cover a large expense or a flexible funding option that gives you on-demand access to cash, we’ll cover it all.
Can Freelancers Get Business Loans?
Freelancers typically operate as sole proprietors. Sole proprietorships don’t come with the fees, requirements, and tax burdens of other legal structures. No registration is required, so anyone that starts engaging in business transactions is considered a sole proprietor.
While sole proprietorships are the easiest and least expensive legal structures, they don’t come without their drawbacks. One of the biggest challenges that freelancers face is seeking business funding.
Getting a business loan isn’t impossible for a freelancer, but you may encounter a few hurdles in your quest to find funding. Because you will be personally liable for the debts and losses incurred by your business, traditional lenders view sole proprietors as risky borrowers. This means that you can’t just walk into your local bank branch and take out a small business loan.
You can, however, explore alternative means of financing. Online alternative lenders are more relaxed in their borrower requirements, making it easier for sole proprietors to get the capital they need. Online lending is usually fast and easy, giving you access to funds in as little as 24 hours in some cases.
However, in exchange for less stringent requirements and fast funding, many online lenders have higher interest rates, additional fees, and less favorable terms than traditional lenders.
So, while it is possible for freelancers to get business funding, it’s important that you shop around, compare offers, and read the fine print to ensure that you choose the best loan for your business.
The Best Funding Options For Freelancers
Now that we’ve established that there is financing out there for freelancers, let’s explore the different types of loans available. Start the process by determining how you’ll use your funds, then take a look at our recommended lenders.
|Type Of Loan||Best For…||Recommended Options|
|Personal loans||Business growth or other one-time funding needs||Upstart, Lending Club, and Prosper|
|Lines of credit||Quick access to cash for emergencies or other funding reasons||Fundbox and Headway Capital|
|Invoice financing||Freelancers with slow-paying customers||Fundbox and BlueVine|
|Crowdfunding||Freelancers in the creative industry with large followings and/or a product to sell||Kickstarter and Patreon|
|Business credit cards||Freelancers with good credit and frequent purchasing expenses||Capital One Spark Cash Select and Chase Ink Business Preferred|
Freelancers and small business owners that don’t qualify for traditional business financing to grow their businesses have an option: a personal loan for business. Most small business loans — even those from alternative lenders — have requirements tacked on that you may not meet. Business lenders take a close look at factors such as how long you’ve been in business, your annual revenue, and your business credit profile.
If you’re starting a new business, haven’t yet established business credit, or don’t meet revenue requirements, you won’t qualify for most small business loans. In some cases, you may be able to qualify with some lenders, but these loans often come with high interest or factor rates, additional fees, and less-than-ideal repayment terms that keep you trapped in a cycle of debt.
This doesn’t mean you’re left without financing options, though. Instead, you can use your personal income and credit score to qualify for a personal loan. With this option, you may qualify for an affordable loan with terms that work best for you and your business. Most of the top lenders look for at least a fair credit score, but having a solid credit profile not only increases your odds of approval but can land you better rates and terms. These loans are best for business growth and other one-time expenses.
One thing to note is that you will have to disclose the purpose of your loan to your lender. While many lenders have no restrictions on how loan proceeds are used, others may not allow you to use your loan for business purposes. To avoid that issue, start with these lenders.
Our Recommended Options:
Upstart offers two big advantages with its personal loans. First, the lender has maximum borrowing limits of $50,000 — a limit that exceeds many of its competitors. Upstart also doesn’t just take your personal credit score into consideration when determining whether or not to approve your loan. While a credit score of 620 is required to qualify for a personal loan, the lender uses additional factors including education and job history to determine eligibility and rates.
Upstart is also a great choice because it offers competitive interest rates starting at just 7.46% for the most qualified borrowers. The application process is quick and easy, allowing you to check your rate in just minutes. Once your loan is approved, you can have access to your funds as soon as the next business day. Monthly payments and repayment terms of three or five years make Upstart loans one of the most affordable online personal loans.
Lending Club is one of the pioneers of online alternative lending. Since 2006, this lender has provided over $45 billion in funding to over 3 million customers. Through Lending Club, you may qualify for as much as $40,000 to expand your business or cover a major expense.
Lending Club offers competitive interest rates starting at 6.95% for borrowers with high credit scores and low debt-to-income ratios. If your credit profile isn’t as solid, APRs range up to 35.89%. You’ll repay your loan through monthly payments over terms of 3 or 5 years.
To qualify for a Lending Club loan, you must have a personal credit score of at least 600. If you receive an offer with higher rates, you may add a co-borrower to potentially receive a better offer. On average, you should expect to have funds about seven days after submitting your application.
Prosper is another online personal lender with a great reputation among its customers. Prosper has helped nearly one million customers borrow $15 billion for multiple purposes, including growing or starting a business.
Prosper personal loans are available up to $40,000. You’ll repay your loan through fixed monthly payments over a term of 3 years or 5 years. Rates are 6.95% to 35.99% based on your personal credit score, credit usage, and history. To qualify for a Prosper loan, you must have a credit score of at least 640 and meet other minimum requirements.
Learn more about what the 5 Cs of credit and what lenders look for when determining your creditworthiness.
Lines of Credit
If you want a more flexible funding option, consider applying for a line of credit. Instead of receiving one lump sum like a traditional loan, you can withdraw funds as needed up to and including the credit limit set by your lender. If you have a revolving line of credit, you’ll even be able to reuse funds as you pay down your balance.
A line of credit gives you access to cash-on-demand without having to wait for a lender’s approval. This makes it an ideal way to get money for emergencies or for any quick purchase for your business.
There are many small business lenders that provide lines of credit with minimum requirements. Some don’t even take your credit score into consideration and instead base approvals and credit limits on the performance of your business. However, another option may be a home equity line of credit, or HELOC.
A HELOC uses your home as collateral to secure the loan. This may offer you a more affordable option than working with small business lenders. A HELOC is also a great choice for new freelancers that need money to get their businesses off the ground.
Our Recommended Options:
If you want a small business line of credit, you’ll find that Fundbox is one of the easiest online lenders to work with. One of the best things about Fundbox is that your personal and business credit profiles aren’t the determining factor for approval. Instead, Fundbox looks at the performance of your business to determine if you qualify, and if so, your credit limit.
The application process is simple and straightforward. When submitting your application, you must securely connect to your business bank account with at least three months of transactions. You can be approved for a line of credit up to $100,000 in just minutes. Draws are repaid over 12 or 24 weeks through weekly drafts of your business bank account, and fees start at just 4.66%.
If you want more flexibility than what Fundbox offers, consider applying for a line of credit through Headway Capital. With Headway, you’ll have access to as much as $100,000 with terms of 12, 18, or 24 months. You can make repayments weekly or on a monthly schedule. Interest rates vary based on your state of residence and how well your business performs.
The application process is fast and easy, and you can receive your funds as quickly as the next business day after approval. While a solid credit score could help you score lower rates and terms, even applicants with less-than-perfect credit may qualify if they meet revenue and time in business requirements.
Many freelancers submit invoices to their clients and customers in order to get paid for providing products or services. Depending on your payment terms, though, waiting for your customers to pay could cause gaps in income that can have a negative impact on your business.
If unpaid invoices are causing financial challenges, consider invoice financing or invoice factoring. With invoice financing, your invoices are used as collateral for a loan or line of credit. Invoice factoring is similar. However, instead of using your invoices as collateral, you sell your invoices at a discounted rate to factoring companies in exchange for cash upfront. Learn more about the differences between invoice factoring and invoice financing.
Our Recommended Options:
We’ve already discussed Fundbox’s lines of credit, but you can also get funding through the lender’s invoice financing service. Instead of connecting your business bank account, you can sync to your supported accounting software. Your account must show at least two months of transactions to qualify.
The lender will use the information from your accounting software to make a credit decision. Unlike other invoice factoring services, Fundbox will allow you to draw up to 100% of your outstanding invoices.
With Fundbox’s invoice factoring, you can receive funds as quickly as the next business day. Fundbox offers competitive fees for this service, and you can even save money by repaying your balance early.
If you’re looking for a lender that offers large factor lines, you can receive up to $5 million through BlueVine. The application process takes just 10 minutes, and you can receive a credit decision in as little as 24 hours.
Once approved, you submit your invoices by uploading them through BlueVine’s dashboard or by syncing to your accounting software. BlueVine will provide up to 90% of the value of your invoices upfront. Once the invoice is paid, you’ll receive the rest, less the factor’s fee.
BlueVine has very low borrower requirements, but you must have a personal credit score of at least 530 and be a B2B business that’s been in operations for at least 3 months and has at least $100,000 in annual revenue to qualify.
If you have an innovative idea or a new product to bring to market, crowdfunding could be a great financial resource for your business.
As a sole proprietor, your best option is rewards crowdfunding. This allows you to raise funding through backers in exchange for a reward, such as first access to a new product. One of the biggest benefits is that you won’t have to repay your backers, so you don’t have to worry about high interest rates or regular payments.
While it’s possible to raise the capital you need through crowdfunding, it’s important to note that this type of financing requires a lot of work on your end. This includes finding the right platform, creating a compelling offer, and sharing your campaign through social media and other online outlets. This is why crowdfunding is best suited for creative businesses or businesses with a large following.
Our Recommended Options:
Since 2009, entrepreneurs have raised billions of dollars through Kickstarter. Kickstarter is a crowdfunding platform for creators. Backers support your project financially, and you provide rewards via exclusive access to your creations.
Kickstarter has an all-or-nothing policy. This means that you must meet your funding goal in order to get paid. If you don’t meet your goal, you won’t get your funding, so set your goal carefully.
You’ll have up to 60 days to raise funding, although Kickstarter recommends 30-day campaigns. Once you’ve met or exceeded your goal, Kickstarter takes a 5% fee. You’ll also be required to pay a 3% to 5% payment processing fee.
Patreon is a unique crowdfunding platform for artists and creators in that it allows you to generate recurring revenue. This is because Patreon is membership-based, allowing your followers to receive exclusive benefits in exchange for a monthly membership fee.
To get started, send out notifications to fans to find out what benefits they’d like to receive. Once you have some ideas, you can set up your page and different membership tiers. Then, continue to provide updates to fans and share your page on social media to bring in more members. Not only will you receive recurring revenue, but your Patreon page can also help you better connect with your fans.
Getting started with Patreon is free, and you only pay fees when you start earning. Pricing depends on the plan that you select, but you’ll pay between 5% to 12% of your monthly Patreon earnings plus payment processing fees.
Business Credit Cards
Most sole proprietors have recurring expenses such as inventory, supplies, and accounting software subscription fees. If you need a financial boost to cover these regular expenses, give a business credit card a try.
Business credit cards work just like your personal cards. The lender sets a credit limit, and you can spend up to and including that amount anywhere credit cards are accepted. You only pay interest on funds that have been used, and as you pay down your balance, funds become available to use again.
When used responsibly, you can even benefit from credit cards through rewards programs. However, to qualify for the credit cards with the lowest rates and best rewards, you must have a solid personal credit profile. It’s also important to note that carrying a high balance from month to month can be a very expensive form of borrowing, so it’s important to pay down or pay off your balance as quickly as possible.
Our Recommended Options:
Spark Cash Select
Spark Cash Select From Capital One
15.24% - 23.24%, Variable
Spark Cash Select from Capital One offers unlimited rewards in the form of 1.5% cash back on every purchase. As a new cardmember, you can also take advantage of a $200 cash bonus if you spend $3,000 within three months of opening your account. There is no annual fee for this card.
To qualify, there are no annual revenue or time in business requirements. However, you must have excellent credit to receive the Spark Cash Select card.
Chase Ink Preferred
Chase Ink Business Preferred
18.24% - 23.24%, Variable
The Chase Ink Business Preferred credit card offers one of the best rewards programs in the industry. You’ll earn three points for every dollar spent on purchases including shipping, travel, internet, cable, phone services, and advertising on search engines and social media. Note that this is capped at the first $150,000 spent per account anniversary year. After that, you’ll receive one point for every dollar spent.
All other purchases receive one point per dollar spent. There are no limitations to how many points you earn, and points never expire.
As a new cardmember, you can receive 80,000 bonus points by spending $5,000 within three months of opening your account. Chase Ink Business Preferred is available to borrowers with excellent credit.
The life of a freelancer is challenging yet rewarding. While getting a business loan may seem like an insurmountable hurdle, there are plenty of options out there for the freelance business owner determined to make it work.
Before signing on the dotted line, though, make sure that you explore your options, compare loan offers, and choose the loan that will best benefit your business. Good luck!