How To Get A Loan When You’re Self Employed

How To Get A Loan When You’re Self Employed

Written by Caitlin Wood
Last Updated September 15, 2022

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. 

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. 

Note: Payday loans are extremely expensive and can lead to a cycle of debt if you’re unable to repay the full amount borrowed. To Learn about the payday loan laws in your province, click here.

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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. 

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. 

APRMonthly PaymentTotal InterestTotal Cost
*$1,000 personal loan with a 1-year term.

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

ProvinceMax cost per $100 borrowed Max Penalty for Returned ChequeCooling Off PeriodLoan Rollover or Extension
Ontario$15n/a2 business daysNot allowed
British Columbia$15$202 business daysNot allowed
Alberta$15$252 business daysNot allowed
New Brunswick$15$2048 hours (not including Sundays and holidays)Not allowed
Manitoba$17$2048 hours (not including Sundays and holidays)Allowed
Saskatchewan$17$25Next business dayNot allowed
Nova Scotia$19$40 (default penalty)Next business day (or 2 days for online payday lenders)Not allowed
Newfoundland and Labrador$21$202 business daysAllowed
Prince Edward Island$25n/a2 business daysAllowed
Quebec35% AIRn/a10 daysNot 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? 

Whether you’re looking for a personal loan or a payday loan, you can qualify for one even if you’re self-employed. However, it can be harder for self-employed Canadians to get a loan due to the instability of self-employment income. 

Do I need to work full time to get a loan? 

No, it’s not necessary to work full time to get a loan. More than your employment status, the amount and volatility of your income payment are more important. If you have enough income to afford the loan, you can find a lender who will lend to you.

How much can I qualify for as a self-employed individual? 

The amount you can qualify for a self-employment loan is dependent on a number of factors including the lender you work with, your income, your debt level, your credit score, and other financial factors. In general, the better your finances and credit score, the higher your chances of qualifying for a larger loan. 

How do I improve my chances of getting a loan while self-employed with bad credit?

There are many ways to increase your chances of getting a bad credit loan while self-employed. You can research the lender and review their minimum requirements prior to applying. You can also get a cosigner or offer an asset to add security to the loan.   

Will a self-employed payday loan hurt my credit? 

Most payday lenders do not require a credit check, so applying with one shouldn’t hurt your credit. However, if you default on your loan, the payday lender can sell your debt to a collection agency, which can wreak havoc on your 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.

Rating of 5/5 based on 2 votes.

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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