The challenge of securing credit of any kind, whether it’s a mortgage or a credit card, is a big one on its own. But when you’re self-employed this challenge becomes harder. When you’re looking your credit, lenders and banks want to see proof of your income, but the proof they want to see can vary. When you’re an employee, you can usually use you payslips or tax returns to prove your earnings. But as a self-employed person, you’re responsible for managing your income. Larger companies will often ask for your accounts from the last two years before they will approve you for any credit. If you’re newly self-employed and don’t have these records, it can make securing a loan or credit card very difficult. If you are self-employed and looking for a loan or you’re considering a move to self-employment, take heed of the following advice for securing a loan.
Look for the Right Type of Loan
If you want to have the best chances of securing a loan while you’re self-employed, start off on the right foot by choosing the right type of loan. For some types of loan, the lender won’t see you as such a risky investment. For example, if you’re looking for a mortgage you can try applying for a Stated Income/Stated Asset mortgage. These mortgages are based on what you tell the lender your income amounts to and they won’t seek to verify that amount. However, they may still verify the sources of your income. This could require providing a list of your clients and submitting IRS forms that allow the lender to examine your tax returns. If you want a personal loan, a secured personal loan will be easier to obtain than an unsecured loan. Dealing with smaller companies may also help.
Keep Meticulous Records
You should be keeping your accounts in order regardless of whether you want to apply for a loan in the future. But if you’re only just researching how to start a home based business, one of the most important things to know is how to organize your accounts. Keeping records of all your income and expenses is important not just for tax returns but for securing a loan too. Many lenders will ask for two years worth of accounts as proof of your income. It might be easy for you to manage your accounts on your own, especially if you have no employees or business partners. But some lenders prefer that you have them assessed by an external accountant. It doesn’t cost a lot to have someone look over your accounts for you, and it prevents you making any costly mistakes.
Squeaky Clean Credit Record
If you’re thinking of becoming self-employed, it’s a good idea to start off with a great credit record. Keep your credit score clean, and you’ll look more attractive to any potential lenders. It will help you to secure a loan and could help you to get lower interest rates too.