Being self-employed might mean more flexibility with work, but it can also mean an inconsistent income flow. This can make getting a loan difficult.
Lenders might want to see more documentation to prove that your self-employment provides steady and sufficient income to cover your loan payments.
If you’re in for financing while self-employed, a little extra effort may be required to secure a loan. But it isn’t impossible. Here are some easy steps to make it easier.
Key Points
- Self-employed individuals can still qualify for loans, but the approval process may be more involved.
- You may need to provide business financials, tax returns, or bank statements to prove consistent income.
- If you have trouble qualifying for a self-employed loan, consider adding collateral, getting a cosigner, or applying with a private lender.
Can You Get A Personal Loan While Self-Employed In Canada
Yes, you can get a self-employed loan in Canada. Basically, all the loan options that are available to traditionally employed Canadians are also available to the self-employed. As long as you can meet all the loan requirements and verify all information with documents, you can secure a myriad of loan types as a self-employed entrepreneur.
Borrow Up To $50,000
What Is A Self-Employed Personal Loan?
A self-employed personal loan is a type of installment loan. Your lender will provide you with a lump sum of money that you can use to cover just about any expense. Then, you’ll make regular installment payments that include both principal and interest until the loan is fully repaid.
Self-Employed Personal Loan Features
Personal loans for self-employed individuals typically come with the following features:
| Loan Amounts | $500 to $35,000+ |
| Interest Rates | 9.99% to 35% (APR) |
| Loan Terms | 6 months to 5 years |
| Check Your Credit Before Applying When applying for a self-employed personal loan, be sure to check your credit score, as it can impact your ability to qualify for a loan and the interest rate you get. In general, a higher credit score can lead to lower interest rates, which can save you a lot of money. |
Where Can I Get A Loan While Self-Employed?
Self-employed loans are available from several sources, including the following:
- Banks
- Credit unions
- Alternative lenders
If you have stellar credit, an extensive entrepreneurial background, and a very high income, you may consider applying with a bank. Traditional lenders tend to offer competitive rates and favourable loan terms, making these loans more affordable and easier to manage.
However, alternative lenders may be a better match if you have bad credit and a more volatile income.
Filters
- Amount
- Up to $35,000
- Rate
- 9.99% – 34.95%
- Term
- 9 – 78 Months
- Amount
- Up to $60,000†
- Rate
- 19.99% – 34.99%*
- Term
- 6 – 120 months
- Amount
- $500 – $10,000
- Rate
- Up to 34.99%
- Term
- Up to 60 months
Can I Get A Loan While Self-Employed With Bad Credit?
Yes, self-employed loans are available to those with bad credit. However, you may have to look to alternative lenders for a loan, as their loan criteria are often less strict compared to banks. That said, while you may have more luck getting a loan from an alternative lender while self-employed, you may pay higher interest or be assessed additional fees.
Learn more: Best Bad Credit Loans In Canada
What Do You Need For A Personal Loan While Self-Employed?
Being as prepared as possible will be your best defence against those unwilling to take a chance on you. Most lenders have their own set of requirements that applicants must meet. But, there are a few things all self-employed individuals should be prepared to provide.
- Proof Of Income. Typically, lenders require proof of employment. But for self-employed individuals, they will ask you to prove your income via tax returns or your business records.
- Bank Statements. Lenders may want to see bank statements to verify your income, check your assets, and ensure your account is capable of accepting direct deposits and withdrawals.
- Government-Issued ID. All lenders require this to prove that you are the age of majority in your province.
- Proof Of Address. This is to prove that you are a Canadian citizen or resident and reside in Canada.
- Company Details. If you own a business, you may be required to provide your business name, address, and even financial statements.
- Credit Report. Many lenders will pull your credit report to assess your credit score and history of repayment. Self-employed borrowers with strong credit are more likely to qualify.
- List of Debts and Monthly Expenses. Some lenders may ask for details about your outstanding debts and regular financial obligations to calculate your debt-to-income ratio.
- Business Plan. If you’re newly self-employed, a lender may request a business plan showing how you expect to generate income going forward.
How To Increase Your Chances Of Qualifying For A Loan When You’re Self-Employed
Because you’re self-employed, you may have to jump over a few more hurdles to get approved for a personal loan. Here are a few steps you can take to improve your chances.
Boost Your Credit Score
A high credit score can increase your odds of loan approval as a self-employed applicant. If your score is a little on the lower end, consider taking the following steps to give it a boost:
- Pay All Your Bills In Full: Payment history holds the most weight in terms of credit score health. By paying all your bills on time and in full each billing period, you can build strong credit.
- Don’t Use More Than 30% Of Your Credit Card Limit: Your credit utilization ratio is another key component in the calculation of your credit score. It’s recommended that you keep your ratio less than 30%. So, if your credit card limit is $5,000, for instance, keep your expenditures to no more than $1,500 (30% of $5,000).
- Increase Your Available Credit: You can ask your creditor for a higher credit limit to help keep your credit utilization ratio low.
- Report Any Errors On Your Credit Report: Pull your credit report at least once a year to scan it for any mistakes. If you notice any, report them to the appropriate credit bureau and have them fixed. Mistakes on your report can pull your score down unfairly.
Learn more: How To Increase Your Credit Scores Immediately
Apply With A Private Lender
If you’ve met with a traditional lending institution and have had no luck securing a loan, then consider working with a private lender. These lenders are a great alternative source for loans because they typically have flexible requirements compared to traditional lenders.
Private lenders often base their decision on your overall financial health rather than just your credit score. They will evaluate factors such as your income, debt, and employment stability.
Choose A Secured Loan Over An Unsecured Loan
Secured loans are almost always easier to be approved for because they reduce the lender’s risk. If you’re having trouble securing the money you want, consider looking into secured loans.
As a self-employed individual, it can be hard to qualify for an unsecured loan due to the volatility of your income. By adding collateral, you’ll be reducing your risk as a borrower, and thus your chances of being approved will increase significantly.
Collateral is any asset you agree to pledge to the lender in case you default on the loan. If you fail to repay, the lender can seize the asset to recover their losses.
Common examples of collateral include vehicles, real estate, investments, or even valuable equipment related to your business. Just keep in mind that if you fall behind on payments, you risk losing whatever asset you’ve put up as collateral.
Ask Someone To Cosign
If you’re unable to secure a loan on your own merit, getting someone to cosign your loan may help. A cosigner will take responsibility for the loan in the event that you default. This greatly reduces the risk your lender takes on, which in turn, increases your chances of approval.
Pros And Cons Of Self-Employed Personal Loans
Taking out a personal loan, whether you’re self-employed or not, comes with a set of benefits and drawbacks to consider.
Self-Employed Personal Loans Pros
Consider the following advantages of self-employed personal loans before applying:
- Affordable Installment Payments. Personal loans can be paid back in monthly installments, allowing you to spread out the cost of the loan.
- Versatility. A personal loan is flexible, meaning you can use the borrowed funds for just any purpose, including covering costs associated with your entrepreneurial journey.
- Lower Cost Compared To Payday Loans. In comparison to high-cost credit products like payday loans, personal loans tend to come with much lower rates. This makes personal loans a more affordable option compared to other financing types.
Self-Employed Personal Loans Cons
There are potential downsides to applying for a self-employed personal loan, such as:
- Need To Provide More Documentation. As you are self-employed and do not receive a regular paycheque, you will need to take more steps to prove your income. This includes gathering more documentation to prove your income stability.
- Longer Application Time. Given the additional information you need to provide, your lender may need more time to do their due diligence to verify your application and documents. As such, loan approval and funding may take longer.
How Much Does A Self-Employed Personal Loan Cost?
You can calculate the cost of your loan by using an online loan calculator. The cost of a self-employed personal loan will be affected by the following factors:
- Interest Rate: The interest rate on your loan is the cost of borrowing and is affected by things like your credit score, loan amount, loan term, and collateral.
- Fees. The lender may charge fees that may add to the total cost of the loan.
- Loan Term: The length of time it takes you to pay off your loan will impact the total cost. Generally, longer terms lead to more interest paid over the life of the loan, while shorter terms result in less interest paid.
To illustrate how much your self-employed personal loan may cost you, let’s use an example of a $1,000 loan on a 1-year term and different interest rates:
| APR | Monthly Payment | Total Interest | Total Cost |
| 10% | $87.92 | $54.99 | $1,054.99 |
| 20% | $92.63 | $111.61 | $1,111.61 |
| 30% | $97.49 | $169.85 | $1,169.85 |
As you can see, a higher interest rate means you’ll pay more interest each month, as well as more interest over the entire loan term.
Other Loan Options For Self-Employed Canadians
Personal loans are a popular financing option among self-employed individuals, but there are other options available, depending on your specific needs:
Line Of Credit
With a self-employed line of credit, you can borrow up to a certain limit and repay it as needed. Interest is only charged on the amount you actually use. Once you repay what you’ve withdrawn, those funds become available to borrow again. This type of borrowing is known as revolving credit.
Revolving credit means you do not need to reapply each time you need funds, unlike a traditional loan. Instead, you can access your available credit repeatedly, as long as you stay within the limit and make required payments. This makes a line of credit especially useful for self-employed individuals who need flexibility to manage irregular cash flow, cover short-term expenses, or respond to unexpected business costs.
Home Equity Loans
If you own a home, you may be able to use the equity in your home as security. This loan option allows you to borrow a lump sum amount with fixed interest rates and payments.
A related option is a Home Equity Line of Credit (HELOC), but it works differently. Instead of receiving a lump sum, a HELOC gives you access to a revolving credit line that you can draw from as needed, similar to a credit card.
HELOCs typically have variable interest rates and interest-only payment options during the draw period, offering more flexibility but less predictability than a home equity loan.
Business Loans
As a self-employed individual, a business loan might make sense if the funds required are needed to fund your operations. Like a self-employed personal loan, a business loan provides you with a lump sum of money that is repaid via installments over a set term. The funds can be used for a variety of business-related expenses.
Car Loans
A self-employed auto loan provides you with a fixed amount of money that is used to cover the cost of a vehicle purchase. Then, you make regular payments over a set term, including both principal and interest. This is a type of secured financing, as the vehicle collateralizes the loan.
Mortgages
If you’re looking to purchase a home, you may need a self-employed mortgage to help you financially. With a mortgage, your lender will loan you a fixed amount of money to pay the seller or builder. Then, you’ll make regular repayments over your term and amortization period until the loan amount is fully repaid.
How To Compare Your Self-Employed Loan Options
When evaluating your self-employed loan options, there are a few factors that you can review to help you choose the best option for your financial situation.
- Interest Rate: When choosing a self-employed loan, you should consider both the interest rate and APR. Your interest rate is simply the interest rate charged on the loan, whereas the APR includes the entire cost of your loan (including fees).
- Term: The term you choose will impact the cost of your self-employed loan. While longer terms can afford you lower payments, you’ll pay more interest over the life of your loan. Similarly, short-terms may have higher payments, but you’ll save money on interest.
- Funding Time: If you need a self-employment loan for an emergency, the lender’s turnaround is an important factor to consider. While some can provide funding in as little as an hour after approval, others require at least a day or more.
- Lender Requirements: Every lender has its own set of minimum requirements to be considered for a loan. If you’re unable to meet these minimum requirements, you should avoid applying with that lender. This will prevent you from applying with too many lenders and acquiring multiple credit checks.
- Lender Reputation: The alternative lending industry often has predatory lenders waiting to take advantage of unwitting borrowers. To protect yourself from these lenders, it’s good practice to check the lender’s review prior to applying. Moreover, some lenders have better customer service than others, reviews can help you avoid ones with a lot of complaints.
| Compare Loan Options To make it easier for you to find a lender that can provide you with the best rates and terms on a self-employed loan, conduct a quick online search and compare lenders using an online loan comparison platform, like Loans Canada. Just enter a few pieces of information, and the site will populate a list of lenders and their offers for quick comparison. |
Final Thoughts
If you’re self-employed in Canada and need a loan, you’ll likely need to provide more information to your lender than the average borrower. Be prepared with all required documents to support your income stability. No matter what type of loan you’re looking for or what type of financial help you need as a self-employed individual, finding a great match when it comes to your lender is one of the best things you can do.
Self-Employed Loan FAQs
Can I get a loan if I’m self-employed?
Do I need to work full-time to get a loan?
How much can I qualify for as a self-employed individual?
How do I improve my chances of getting a loan while self-employed with bad credit?
Will a self-employed payday loan hurt my credit?
®Fairstone Financial Inc. is a wholly owned subsidiary of Fairstone Bank of Canada.
*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
†On approved credit. Terms and conditions apply. Interest rates vary by province/territory and from customer to customer based on factors like credit score and borrowing history. See Fairstone’s website for details.
Fairstone Financial Inc. holds high-cost credit licenses in AB, MB (License #85047, expiring 20-02-2026) and QC; it has applied for a high-cost credit grantor license in NL. For license information by province, visit Fairstone.ca/HCCG
In Ontario, Fairstone Financial Inc. is licensed as mortgage brokerage 10821.
In Nova Scotia, Fairstone Financial Inc. is licensed as mortgage lender #2021-3000028.
