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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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 |
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.
| 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 | $19 | $40 (default penalty) | Next business day (or 2 days for online payday lenders) | Not allowed |
| Newfoundland and Labrador | $21 | $20 | 2 business days | Allowed |
| Prince Edward Island | $25 | n/a | 2 business days | Allowed |
| Quebec | 35% AIR | n/a | 10 days | Not allowed |
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.
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.
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.
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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.
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