Being your own boss doesn’t mean that you can’t get a loan. It simply means that you may have to provide more documentation to prove your income than someone who brings home a regular paycheque from an employer.
Whether you own your own business or are a contract worker, having to put in some extra time and effort is probably something you’re familiar with. The number one piece of advice we can give you is to approach getting a loan the same way you approached becoming self-employed. A little extra effort will be required of you, but it won’t be impossible and we don’t want you to think it’s impossible. To increase your chances of being approved and to help make the process as smooth as possible, we’ve compiled all the information you’ll need to get started.
Can You Get A Self-Employed Loan In Canada?
If you’re looking for cash to cover an unexpected or large expense, you could apply for a personal loan or a payday loan.
Payday loans offer convenience while personal loans offer more affordability. Let’s compare the two options to help you make the right decision based on your needs.
Self-Employed Personal Loans
Personal loans are pretty straightforward. They consist of a lump sum of money deposited directly into your bank account. They come with an interest rate between 3% – 46% and fixed monthly payments for terms ranging from 6 months to 5 years on average, which can be used for whatever expenses you have.
When applying for a personal loan, be sure to check your credit scores 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.
Self-Employed Payday Loans
If you’ve been researching loan options for a self-employed person, you likely have come across payday loans. These loans are easy to get approved for, all you need is a bank account, permanent address, and proof of income. Typically you can get the money the same day or within 24-hours and must be repaid with two weeks or sometimes one month.
But, they come with huge APRs and can cause serious debt issues if you can’t pay them back on time. It’s recommended that you only use this option as a last resort.
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How To Qualify For A Self-Employed Loan
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. Some lenders, essentially alternative lenders, will ask you to provide bank statements. Keep in mind this doesn’t mean you have to provide access to your online banking.
- Government Issued ID. All lenders require this to prove that you are the age of majority in your province. Typically you will need to scan both the front and back and email or fax it directly to your lender.
- Proof Of Address. This is to prove that you are a Canadian citizen or resident.
- Company Details. If you own a business, you may be required to prove your business name, address, and even financial statements.
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How To Get A Self-Employed Payday Loan
Most payday lenders have very few requirements, making it a convenient option for those who are self-employed. In general, you’ll need the following to qualify for a payday loan while self-employed:
- Proof Of Income – One of the most crucial factors for approval is your income. Depending on your lender, they may need at least 3 months of bank statements to verify your income.
- Active Bank Account – For both repayment and funding, most payday lenders will require that you have an active bank account.
- Be A Canadian or A Resident – To apply, you’ll need to be a Canadian citizen or a Canadian resident.
- Meet Age Requirements – You’ll also need to be the age of majority in your province or at the very least 18 years old to apply.
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.
Go With A Private Lender
If you’ve met with a traditional lending institution and have had no luck securing a loan then you should consider working with a private lender. Private lenders are a great alternative source for loans because they typically have flexible requirements compared to traditional lenders. These 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, so if you’re having trouble securing the money you want you should consider looking into secured loans. Lenders like security because if you were to default, your lender would be able to use the collateral to cover the money you owe them.
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.
Ask Someone To Cosign
If you continue to be rejected for the loan you might want to consider getting someone to cosign for you. A cosigner will take responsibility for the loan, in the event that you default on it. This greatly reduces the risk your lender takes on, which in turn, increases your chances of approval.
Cost Of A Self-Employed Personal Loan
The cost of a self-employed personal loan will be affected by the interest rate and fees you’re charged. The total cost will also be affected by the term you choose, generally longer terms lead to more interest paid over the life of the loan.
| 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 |
| 40% | $102.47 | $229.66 | $1,229.66 |
Cost Of A Self-Employed Payday Loan
Payday loans have notoriously high-interest rates, with some reaching well into the six hundreds. Their fees for late-payments and non-sufficient funds (NSF) also tend to be very expensive. When taking out a payday loan while self-employed, it’s important to take account of the entire cost of the loan, especially when your income is inconsistent.
Depending on the province you live in, the cost of a payday loan will vary as each province has a maximum a lender can charge.
Maximum Cost Of A $100 Payday Loan By Province
| Province | Max cost per $100 borrowed | Max Penalty for Returned Cheque | Cooling Off Period | Loan Rollover or Extension |
| Ontario | $15 | n/a | 2 business days | Not allowed |
| British Columbia | $15 | $20 | 2 business days | Not allowed |
| Alberta | $15 | $25 | 2 business days | Not allowed |
| New Brunswick | $15 | $20 | 48 hours (not including Sundays and holidays) | Not allowed |
| Manitoba | $17 | $20 | 48 hours (not including Sundays and holidays) | Allowed |
| Saskatchewan | $17 | $25 | Next business day | Not allowed |
| Nova Scotia | $17 | $40 (default penalty) | Next business day (or 2 days for online payday lenders) | Not allowed |
| Newfoundland and Labrador | $14 | $20 | 2 business days | Allowed |
| Prince Edward Island | $15 | n/a | 2 business days | Allowed |
| Quebec | 35% AIR | n/a | 10 days | Not allowed |
Self-Employed Personal Loans Pros And Cons
Taking out a personal loan, whether you’re self-employed or not, always comes with a set of pros and cons, consider the following before you apply for any type of loan.
Self-Employed Personal Loans Pros
- Easy Access to Cash. Personal loans are a convenient way to gain access to the money you need. Especially if you need the money quickly.
- Affordable Installment Payments. Personal loans can be paid back in monthly installments which makes them more affordable compared to payday loans and even credit cards in certain situations.
- Versatility. A personal loan has no limits, you can use it for any purpose, making it a good option for a self-employed person. Moreover, as a self-employed person with a volatile income, you can modify your personal loan terms to suit your financial situation.
Self-Employed Personal Loans Cons
- Need To Provide More Documentation. As you are self-employed and do not receive a regular paycheck, you will need to take more steps to prove your income.
- Longer Application Time. Because you will be required to provide more information and because your lender will likely have more due diligence to perform, approval will take longer.
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, it leads to 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.
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?
Find A Great Match
No matter what type of loan you’re looking for or what type of financial help you need, finding a great match when it comes to your lender is one of the best things you can do for yourself. If you’ve decided that you want to go with a private lender, Loans Canada’s can help, start the process today and you’ll be one step closer to being approved for the loan you need.
