5 Best Business Loan Options For Freelancers & The Self-Employed
Traditional lenders view sole proprietors as risky borrowers, but online alternative lenders are more relaxed in their borrower requirements, making it easier for sole proprietors to get the capital they need.
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. But like any business owner, freelance businesses need capital to invest in business growth, cover day-to-day operating costs, purchase needed equipment, and pay other expenses. This is especially true if your income is irregular or your clients don’t always pay you on time.
To help finance business expenses, freelance businesses–which are usually structured as sole proprietorships–often look for business loans. But finding a loan as a freelancer/sole proprietorship can be challenging, to say the least.
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. In this article, we’ll explore the best online 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.
Read more below to learn why we chose these options.
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Best Loans For Freelancers & The Self-Employed
Though it’s hard for freelancers to get traditional business loans, freelancers can qualify for alternative financing such as personal loans, lines of credit, and invoice factoring. The best loans for freelancers are:
Let’s take a closer look at these online lenders.
Personal loans are a great source of financing for freelancers because they do not have any time-in-business or business revenue requirements. Upstart, in particular, offers two big advantages with its personal loans. First, this online lending platform lets you borrow up to $50,000 — a limit that exceeds many of its competitors.
Second, Upstart also doesn’t just take your personal credit score into consideration when determining whether or not to approve your loan. While a fair credit score of 580 is required to qualify for a personal loan, Upstart uses additional factors including education and job history to determine eligibility and rates. They will also accept applicants with insufficient credit history to produce a FICO score.
Upstart is also an excellent choice because it offers competitive interest rates starting at just (typical APRs range from 6.76% to 35.99%). 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 generous repayment terms of three or five years make Upstart loans one of the most affordable online personal loans for freelancers.
- No income or time-in-business requirements
- Accepts applicants with minimal credit history
- Repayment terms as long as 5 years
- Next-day funding
- Usually requires an origination fee
- Doesn’t accept poor credit applicants
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.
Through Prosper, freelancers with no official business credentials can borrow up to $40,000. You’ll repay your loan through fixed monthly payments over a term of three or five years. Typical APRs range from 7.95% to 35.99% based on your personal credit score, credit usage, and history. To qualify for a personal loan through Prosper, you must have a personal credit score of at least 640 but you have the option to add a co-signer to your loan if your score is too low.
Learn more about what the 5 Cs of credit and what lenders look for when determining your creditworthiness.
- No time-in-business or revenue requirements
- Can add a co-signer if your credit score is too low
- Can repay over 3 or 5 years
- Next-day funding
- Origination fee as high as 5% taken off the top of the loan
- Not for individuals with bad credit (except with a co-signer)
- The most you can borrow is $40K
If you want a business line of credit or short-term loan as a freelancer, you’ll find that Fundbox is one of the easiest online lenders to work with. A Fundbox LOC is suitable for freelancers that are bringing in steady stream of income but need more time or deeper pockets to pay ongoing business expenses or vendors; their short-term loan is better for paying one-off expenses like an investment in new equipment. One of the best things about Fundbox is that your personal and business credit profiles aren’t the determining factor for approval.
Though you do need a score of at least 600, Fundbox mainly looks at the performance of your business to determine if you qualify, and if so, your credit limit. You’ll also need at least 6 months in business and your freelance business must earn at least $100,000 in annual revenues.
Fundbox’s LOCs and STLs both have a max. borrowing amount of $150,000. Line of credit draws are repaid over 12 or 24 weeks through weekly drafts of your business bank account, with fees starting at 4.66%. Short-term loans are also repaid weekly, over 24 or 52 weeks, with fees starting at 8.33%.
- No draw fees on LOC
- No origination fees on STL
- Next-day funding
- Relaxed credit score and time-in-business requirements
- Short repayment terms
- Fees can be high
- Requires reliable freelance income totaling at least $100K/year
Many freelancers in the B2B sphere spend a considerable amount of their time chasing down their clients who haven’t paid invoices on services rendered. One solution for this problem is invoice factoring, and a good thing about invoice factoring is it usually doesn’t require good or even fair credit. Through BlueVine, you can receive an invoice factor line up to $5 million. 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 invoice factoring 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 operation for at least 3 months. Your freelance income also needs to be at least $10,000/month to qualify. BlueVine also offers a business line of credit similar to Fundbox’s, as well as business checking accounts.
- Bad credit-friendly
- Large factor lines up to $5 million
- Transparent fee structure
- Only for B2B businesses (can’t be used on B2C invoices)
- BlueVine may notify your customers about the factoring arrangement
- Requires reliable freelance income totaling at least $120K/year
Credibly is an alternative business lender that offers a number of business financing products to businesses that don’t qualify for a bank loan due to poor credit or a short time in business. Even if your freelance business is only 6 months old or your FICO is as low as 500, you can qualify for a Credibly line of credit up to $250,000 or a working capital loan up to $400,000.
Additionally, Credibly has invoice factoring, equipment financing, and other business lending services you might be able to benefit from as a freelancer.
The main requirement is that your balance sheet should show regular revenues of at least $15,000/month for a working capital loan, though the income requirement for a Credibly LOC is just $50,000/year. Still, you’ll need regular and reliable freelance income even with the LOC because you’ll be making large weekly payments.
Credibly working capital loans have lengths ranging from 6-18 months and you’ll repay via automatic daily or weekly payments. Factor rates start at 1.15, though some additional fees are charged, including a 2.5% origination fee. On LOCs, rates start at 4.8% for a 26-week term.
- Relaxed credit score and time-in-business requirements
- High borrowing amounts
- Easy application
- Fast funding
- Origination fee
- Frequent repayments
- High income requirements ($15K/month for working capital loan)
Types Of Loans For Freelancers
Most of the above loans for freelancers fall into the categories of personal loans, lines of credit, and invoice factoring. A couple of options also offer some business term loans that may be suitable for freelancers. However, freelancers who don’t qualify for any of these loan options might consider a business credit card or business crowdfunding. Learn more about these options below.
|Type Of Financing||Best For…||Recommended Options|
|Personal loans||Business growth or other one-time funding needs||Upstart, Prosper|
|Lines of credit||Quick access to cash for emergencies or other funding reasons||Fundbox, BlueVine, Credibly|
|Invoice financing/factoring||Freelancers with slow-paying customers||Fundbox, BlueVine, Credibly|
|Crowdfunding||Freelancers in the creative industry with large followings and/or a product to sell||Kickstarter, Patreon|
|Business credit cards||Freelancers with good credit and frequent purchasing expenses||Capital One Spark Cash Select, 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.
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.
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.
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.
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.
How To Get A Freelancer Business Loan
Once you decide to pursue a freelancer loan, there are a few steps you need to take to make sure you’re successful in your pursuit. Although it’s very easy to start applying for loans as soon as you find the link, you are not likely to secure a high-quality loan if you just start blindly applying without putting any thought or research into it.
Follow these 5 these steps to help ensure that you get funded and to make sure you get a good deal on your freelancer loan. You can also find a more detailed description of these steps by reading How To Get A Small Business Loan: The Step-By-Step Guide.
Check & Polish Up Your Credit
You need to know your credit score before applying to loans, since your FICO score will determine what loans you’ree actually eligible for. You should also familiarize yourself with your full credit report, since you’ll need to explain any negative marks to your lender.
Get started by obtaining your free credit report online. Go through the report to check for any errors or negative marks such as collections or missed payments. If you discover that your credit is not very loan-worthy, you may be able boost your score a bit by paying off some or all of your outstanding debt, as this will affect your credit utilization. You can also dispute any errors you find on your report through the credit bureaus.
Decide How Much To Borrow
It’s important to have an accurate idea of how much capital you need and what you’ll spend it on. Knowing exactly how much money you need will help save you from the high cost of over-borrowing, or from applying to lenders that can’t meet your capital needs. You should also estimate the return on your investment (ROI) so you know how borrowing this capital will benefit your business in the long run.
Besides knowing how much you want to borrow, you also need to know how much you can afford to borrow. Depending on your current business income or how much debt you have already, you may not be able to reasonably afford your payments on a very large loan. Lenders will use your Debt Service Coverage Ratio and your Debt To Income Ratio to determine your loan amount, or whether you qualify for financing at all. Read the linked articles to calculate your own DSCR and DTI before applying.
Decide On A Type Of Loan
As I’ve already described, different types of business financing have different uses, and different pros and cons. Loan purposes, as well as interest rates, repayment terms, and borrower requirements all vary depending on the type of financing. In some cases, you might qualify for more than one type of financing, but just because you can qualify for a short-term loan and a line of credit, for example, doesn’t mean that you should apply for both.
Though it’s possible that more than one type of financing could meet your borrowing needs as a freelancer, you should try to narrow your scope as much as possible. This will also help you narrow down which lenders to focus on.
Prepare Application Documents
Having all your application documents ready before you start applying will make the application process a lot faster and smoother. After you are pre-approved for a loan offer, the lender will ask you to provide certain documents to verify your business credentials, and the faster you produce these documents, the faster you’ll get funded.
Here are some common business loan application documents you might need to produce at some point during the process:
- Business plan
- Business bank account statements for past 3+ months
- Government-issued ID
- Business licenses
- Business mortgage or lease
- Business tax returns
Generally, online business lenders have pretty relaxed documentation requirements, and personal lenders do not require business-related documents at all. But in any case, you’ll want to gather all the relevant documents you have at your disposal so you’re prepared for whatever the lender might ask for.
Start Applying & Comparing
Now that you’ve gotten all your ducks in a row, it’s time to start sending out those applications. In most cases, you can apply for an online loan and get pre-approved without incurring a hard credit inquiry that will show up on your credit report. This means you can get pre-approved for multiple loan offers with no impact to your credit, and choose the offer that you like best. (Note that once you accept a loan offer, the lender will usually run a hard credit inquiry before you get funded, though there are some loans with no credit check at all.)
If you’re short on time or unsure of which lenders you should apply to, there are online business lending platforms that will let you apply to and compare multiple online loans with a single application. For business loans specifically, Lendio and Funding Circle are a couple recommended services that will submit your application to their networks of partner lenders and then show you which loans you qualify for.
The life of a freelancer is challenging yet rewarding. While getting a business loan as a freelancer may seem like an insurmountable hurdle, there are plenty of online loans out there for the freelance business owner determined to make it work.
Online loans for freelancers are 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 before signing on the dotted line, make sure that you explore your options, compare loan offers, and choose the loan that will best benefit your freelance business.
Did you know that as a freelancer, you can deduct business loan interest on your taxes? For more freelancer tax tips, read The Top 20 Tax Deductions Freelancers Need To Know Before Filing Their Freelance Taxes.
In Summary: Best Loans For Freelancers & The Self-Employed
- Upstart: Best for new businesses with limited credit history.
- Prosper: Best for startups with good personal credit or a co-signer.
- Fundbox: Best for freelancers with an established business and fair credit.
- BlueVine: Best for B2B freelancers with slow-paying clients.
- Credibly: Best for bad credit businesses with strong revenues.