Understanding How Payday Loans for Self Employed Individuals Work

Few things are as fulfilling as being your own boss. And when you’re profitable, it’s like icing on the cake. But entrepreneurship suddenly becomes not so sweet when you experience an unanticipated financial shortfall.

Research shows that over two-thirds of startups do not deliver positive returns to their investors. So, if you’re facing financial struggles as an entrepreneur, you’re in good company.

Fortunately, you can secure a personal loan like a payday loan. Payday loans are often specified for people with employers. However, self-employed individuals can get them, too.

Here’s a rundown on how payday loans for self employed individuals work and how to secure one when you’re in a financial pinch.

Let’s jump in!

What Is a Payday Loan?

A payday loan is a short-term loan that can help you to address a short-term financial problem. It is made to fill a gap between your payments or paydays. In this way, you can quickly get the funds you need rather than waiting on a payment from your employer or client.

To secure this type of loan to cover bills, for example, you’ll have to complete a payday lender application. If you are approved, you can receive the amount of money you need to cover your shortfall.

Then, you will pay this money back plus interest within a certain period that you agree to. For larger amounts, you will likely make these payments monthly.

The amount you apply for may range from as little as $100 to several thousand dollars, depending on your shortfall need.

Benefits and Considerations of Payday Loans for Self Employed Individuals

One of the biggest benefits of payday loans is that you can use these loans to cover a variety of expenses. You don’t have to use the loan funds to cover a certain item, like a car or house, as you would with a car loan or mortgage, respectively.

In addition, these loans are processed relatively quickly. You can generally expect to receive your funds by the next business day.

Yet another benefit of a payday loan is that you can typically get this type of personal loan even if you have poor credit.

Some providers of loans require you to have a good credit score to get a loan from them. A good score is in the range of 661 and higher.

However, some personal loan providers have no problem with lending to borrowers with bad credit scores — scores under 600. This makes this type of loan easier to qualify for compared with a traditional bank loan.

The drawback of a payday loan, though, is that it can be expensive. That’s because this type of loan usually comes with high charges and fees. For this reason, it’s best to seek this type of loan only if you have a true financial emergency that you can’t cover otherwise.

The Challenges with Being Self-Employed

Because the approval and processing of a payday loan occur rapidly, a payday lender has to assess a borrower’s creditworthiness.

Unfortunately, self-employed individuals may struggle to prove their creditworthiness because they do not have traditional proof of income, like regular paycheck stubs. They also may not have strong credit histories.

Fortunately, you have a few options for proving that you can generate enough revenue to repay your loan principal as well as the interest you will owe if approved for a personal loan.

If you have provided invoices to your business clients for services or products, you should have no problem showing that you are a reliable person to lend to. This is true even if it’s been a few weeks since a client paid you.

Self-Employed Income Proof

Keep in mind that as you explore providers of personal loans, some lenders might have specific requirements for annual income. For this reason, you should inquire about their income requirements before you apply.

You should also check with your prospective lenders to find out what documents they need to prove your income. Let’s take a peek at the various proof of income options you’ll likely have when applying for a loan.

Transcripts and Tax Returns

If you have filed tax returns in recent years (which you are legally required to), these are among the best documents to submit to prove your income. That’s because a tax return can quickly offer detailed information regarding your business’s income over an extended period.

Be prepared to provide 2-3 years’ worth of returns to make this happen.

Tax returns are an especially great option for self-employed individuals whose credit scores aren’t the best. A low credit score might diminish your chances of getting approved for a loan. However, strong tax returns may turn the situation in your favor.

That’s because what’s most important to lenders is that they get their funds back — plus interest — in full. If you can prove that you’re capable of doing this, you’re more likely to be approved for a loan.

Bank Account Statements

Another option for proving your income is to present bank account statements to your prospective lender.

One year’s worth or even just a few weeks’ worth of statements can show the lender that you have a track record of success in receiving regular customer payment deposits. This means you’ve got a consistent income stream that can support your loan repayments.

Also, note that lenders may ask you to provide your bank login information as part of the process of getting your loan. This standard encrypted process will provide your lender with access to read-only bank statements. This will make processing your loan faster.

Schedule SE

An alternative to submitting bank statements and tax returns to a payday lender is the tax form Schedule SE. This form shows how much taxes you have paid on the income you have generated. It also shows you the taxes you owe toward Social Security and Medicare.

A reputable lender will seek to verify that your business’s tax payments feature no discrepancies and are correct. That’s because an error in any of your business expenses might trigger an IRS audit of your liabilities and assets. No lender wants to assume this risk. 

Schedule C

You may also provide your Schedule C as proof of your income. This tax document details your business’s losses, expenses, and profits.

All or at least the majority of your business’s income and profits are likely reported on the Schedule C. This means that this document confirms how much money you make. With this information, lenders can easily determine if you are worth lending to.

Self-Employed Interest Rates

If you make enough income to qualify for a personal loan, you’ll need to ask your potential lender how much interest they charge before you sign on the dotted line.

Many payday loan providers charge substantial interest rates. Whereas some may charge an APR of 250%, others might charge an APR of nearly 1000%.

Self-Employed Fees

In addition to inquiring about your loan interest rate, ask the lender what types of fees they charge to process the loan.

Before you provide your John Hancock on any document, the lender should fully disclose to you the loan agreement terms. This will enable you to make an educated financial decision. Be sure to fully read through these terms before signing for a loan.

Self-Employed Repayment Period

Finally, find out how long your loan repayment period is before accepting a personal loan.

Repayment periods may be as short as 91 days to as long as 72 months. However, some payday loans have shorter repayment periods, particularly if you are not borrowing a significant amount of money.

Your lender should clearly describe your repayment loan upfront. Be sure to read your loan agreement carefully and ask any questions you have about the repayment terms before signing the agreement.

If you are late on your payments, you may face a penalty based on your lender’s policy. Late penalties differ from lender to lender, so if you think being late may be a problem for you at some point, choose the lender with the most lenient late penalty.

How We Can Help Individuals Seeking Personal Loans

Payday loans for self employed individuals are easy to secure if you can provide up-to-date proof of income. You’ll also need to accept the loan repayment terms and interest rates that your chosen lender charges.

Fortunately, at FastLoanDirect, we take pride in helping entrepreneurs to find the right lenders for their needs. We never charge for our services, either.

Get in touch with us to learn more about our services and get the cash you need now!