A business loan seems impossible for self-employed persons, freelancers, and small business owners. Business plans, projections, three years’ worth of tax returns, profit and loss statements – forget it – gathering the paperwork is already a full-time job. But what many don’t realize is that consumer loans are a different type of funding that avoid most of the application process.
When applying for a consumer loan, the application is based on you as a borrower, not the business as an entity. Therefore, access to funds for business purposes is just as effective without all that paperwork.
Why It Makes Sense with Consumer Loans
There’s just less of a process. A business loan would rely on the financial viability of the company and the paperwork supporting it. Consumer loans rely on you as a borrower to the required extent that determines whether or not you can pay it back, thus skipping weeks or months of application prep just to get a yes or no decision for subsequent steps sooner.
If you need $25,000 to buy new equipment because your systems are outdated or $15,000 to fill cash flow gaps in $5,000 increments until your business picks back up again or even $10,000 to invest in a marketing campaign, a consumer loan is ideal for this small amount. You are not seeking $500,000 for major expansion; you’re looking for $25,000 or less, and it makes sense.
Similarly, self-employed persons are disadvantaged regarding business funding since it’s often more stringent and doesn’t consider variable income or more “new” businesses. However, with consumer loans, underwriting focuses on your entire financial picture of personal income history and credit profile.
What Lenders Need from You
Less documentation than other more traditional applications. Lenders need proof of identity (usually license or driver’s), pay stubs within 30 days or income verification statements that prove income based on employment history (or total of tax return for a self-employed person), and the employment information – where the person works and for how long.
For the self-employed, this is usually just tax returns unless inconsistent income doesn’t jive with what’s needed. If you’ve been self-employed for several years and consistent income shows year two to year three but little change from year one to year two, it’s sufficient.
Credit history plays a larger role here than business lending. A lender wants to know about decent personal credit – bills paid on time, reasonable credit card balances, personal loans, and if those accounts are in good standing – and if you’re personally creditworthy and your business is less than one year old but functioning well with credit, that’s sufficient.
Income verification counts but is less stringent than what’s expected from business lending. A lender needs to hear/read that you have enough personal funds available to maintain personal/housing expenses without needing your business to validate its profitability metrics via gross vs. net calculations. For many self-employed clients, this is easier than showing what’s left after expenses and write-offs.
The Timeline that Makes Sense
Where consumer loans come in clutch is with the timeline from application to funding – it can be days versus weeks or even months. Many lenders with online applications only require 15-20 minutes; documents can be uploaded online, and many lenders state they provide a decision within 24-48 hours.
With so many loan types and comparison options that take time more often to bog someone down with time-consuming consideration versus information-gathering opportunities, investigating forbrukslån provides a streamlined process in which you can find several options without drowning in paperwork.
The timeliness helps when opportunities arise in windows or issues are immediate. The approval process moves faster since lenders bank on automated submission and decision-making systems that verify applicants and their risk; what once took days (if not longer) of manual oversight happens in hours (if not minutes).
This is ideal for business owners with a need to act now or an opportunity that may not be available down the line.
How Self-Employment Comes Into Play
In the past, self-employment was a red flag when loans were involved. Variable income may vex too many lenders since they don’t know whether you’ll be making money next month. However, with modern consumer loans have become relatively sophisticated due to many alternative workforces becoming mainstream.
Current expectations demonstrate income over time in lieu of systematic consistency month over month. If your tax returns reveal consistent or growing income between years but varied months in between, it’s understood through the self-employed world that income isn’t static.
Even better are multiple sources of income. Perhaps your freelance position comes with part-time work or other part-time clients; lenders see diversification – not instability – as you’re not living paycheck-to-paycheck through one venture but instead have many factors working in your favor.
How You Present the Financial Picture
It’s not always about what you present; sometimes it’s how you present. You can give information without context as to how you’ve made your money; however, presenting how your income structures works well in lenders’ minds.
For example, if you’re a consultant with three main clients who give you steady work throughout a year – even if they don’t work with you month over month – and you can articulate that structure so lenders understand your earnings as nearly guaranteed since those three clients are paying quarterly/since annual project work can pay off for January-June and then transition to decreased hours July-December (and they still catch up at 30% each month).
Seasonal considerations for part-time work show how cash flow works throughout the year and how much you earn per season – how much you make during one season compared to the rest while making up in winter months by drawing on summer hard work; lenders often look for context regarding their instinctual fears about what’s natural vs. what’s perceived as an issue.
Organization helps; you would think they’d require you to justify why they should lend money – tax returns – bank statements – credit histories – but it’s more about making it easy for lenders to get the bigger picture without having to go around gathering every single bit of information required.
Flexible Needs
Consumer loans don’t restrict needs once received like business loans do upon acquisition; it’s not your job to prove how much money is spent down to the penny nor report back on how it all worked out afterward.
There needs to be some flexibility because if you need equipment or want some of that money to go toward marketing or even some personal endeavors that benefit your potential business – and trust the lender – you should be able to do so without check-off items on business growth plans.
This helps when funding needs occur rapidly because of opportunity. If there’s an amazing sale on equipment you’ve found or unexpected inventory items at a discount – you can act without seeking approval beforehand.
Common Factors That Increase Approval Chances
There are certain common factors that increase approvals and terms; when self-employed persons have credit scores of 650+, it’s better than having lower scores with no additional direction; stable housing patterns whether renting long-term or owning property checks out; it’s been credited – although not necessarily required – to have a checking account with the lender.
Employment/self-employment history matters if you’ve consistently been at your job where you’re at now for two years – or consistently at jobs where jobs changed during those years – but self-employment history proves x amount of time successful – even if it’s somewhat new – but all documented well should support approvals.
Debt matters as lenders want to see how much debt you’ve had versus how much debt should come going forward; ideally, debt-to-income ratios favor another payment; however, existing debt shouldn’t be maxed out relative to how much income is created from it – keep it simple helps increase chances for additional loans.
When It Makes Sense Most
Consumer loans make sense when something is small enough that wouldn’t otherwise justify business loans but too much expense without cash flow alone. This includes equipment purchases; office upgrades; cash flow deficiencies during seasonality could also work here as spending intentions on marketing efforts reflect good use.
If extensive capital is needed for major expansion under established companies with great teams running every effort so every box can be checked off with attention to detail – business loans make better sense despite stringent application processes – but most under small business acquisition would benefit from what’s given access through consumer loans instead.
Business loans trap people who would otherwise never apply due to lack of access ability beyond creation getting ensnared into avoiding getting any funding altogether when consumer loans help avoid all those pitfalls without creating new jobs of applications while making it easy when need exists rather than ramping up documentation that takes too long to potentially avoid optimal situations at all.
