How to qualify for a loan as freelancer?
Ahh… that fabulous feeling you get from breaking free of the W2 ball and chain!
Yes, it feels great to be your own boss. But there are some downsides to a freelance income. Banks tend to frown on those who can’t pony up a W2 to verify their wages.
But there are some things you can do to improve your odds of getting a loan. In this article, we’ll discuss how to qualify for a loan as a freelancer.
Get Your Ducks (Paperwork) in a Row
Getting your paperwork together before you visit the bank is a critical step. This lets the banker know that you’re serious about financing. And that you’re doing your part to make the bank happy with the risk.
Provide two years of tax returns. These returns will have a Schedule C detailing your freelance income and expenses.
When you’re self-employed, you can write off anything from mileage to office gadgets. But if your Schedule C looks pathetic because of a bunch of write-offs, you’ll have a harder time getting a loan. Be ready to provide reasonable explanations for all your tax write-offs.
Get together your freelance contracts, 1099 forms, and invoices. Many companies use an online pay stub generator. So it’s easy for them to provide you with stubs for payments you’ve received from them.
Sometimes you don’t have written contracts with clients. If not, ask them to provide something in writing showing that you have a working relationship with them. This lets the bank see that you’ll have the ongoing income to make future loan payments.
Shore Up a Sagging Credit Score
Pay special attention to your credit score. If you haven’t gotten your annual free credit report, do it before you go to the bank. That way, you know what to expect when they look at your credit.
Don’t have stellar personal credit? There are some things you can do to boost your credit score before you apply for the loan. Let’s take a look at some options.
1. Pay Off Debt
If you have little, dinky credit cards here and there, pay them off completely. Consolidate as much as you can and work on paying it down.
2. Don’t Open Up New Credit
Don’t apply for new credit cards before you go to the bank. Anytime a lender pulls your credit report, it drops your score some.
3. Pay Your Bills
This might seem obvious, but paying your bills on time boosts your credit score. Late payments cause it to plummet in a hurry.
If you’re accustomed to making your car payment two weeks late, get that cleaned up immediately. And if you have any outstanding collections or judgments, take care of them asap.
Look Outside the Typical “Loan Box”
You may need to look outside your comfortable credit zone. There are lots of options for financing that you may not think of right away.
Try a local bank rather than a high-end national bank. Often, local banks are easier to work with and more willing to bend their rules for freelancers.
Consider having someone co-sign with you. It’s not an ideal situation, but if you have someone who’s willing to do it, try that option. You’ll probably get a better rate that way too.
Also, check into online loans or stated income loans. These loans tend to have higher rates and shorter terms. But if you’re in a pinch, they are also easier to get approved for.
How to Qualify for a Loan as a Freelancer
Do you have a better feel now for how to qualify for a loan with a freelance income? We’ve given you a few of our best tips. And hopefully, you’ll find the loan that’s right for you.
Remember to get your paperwork is in order before you approach a lender. Clean up your credit score as best you can. And try looking for different types of loans that might be more accepting of your unconventional income.
Speaking of income, do you need help invoicing your clients? Check out our top tips for invoicing to implement in 2019.