Borrow Money

If you are self-employed, it is still possible to borrow money however the loan application process may be a bit difficult. The main reason for this is that you do not receive pay stubs or W-2s from an employer so it is slightly more difficult to demonstrate that you earn enough money.


Can I take out a loan if I am self-employed?

Being self-employed can make the process of securing a loan more difficult; however, it is still possible. Lenders will need to review an individual’s credit and income before approving a loan in order to determine a borrower’s creditworthiness and how likely they are to repay their loan on time. If you are self-employed, you will not have W-2s from an employer; however, here are some ways that you could demonstrate your creditworthiness if you are self-employed:


Tax returns

It is relatively common for lenders to request to see tax returns as a way of verifying your income, instead of pay stubs or W-2s. Depending on the lender, they may ask for several years’ worth of documents; generally speaking, you will need to be able to show at least a minimum of two years of tax returns or tax transcripts. In addition, lenders could also ask to review your net profit or loss rather than just your gross income.



Lending to a self-employed borrower can be seen as a greater risk for lenders than lending to a borrower who is in full-time employment. To counteract the risk, the loan offered to someone who is self-employed may be a “secured” loan. This means that the loan is backed by collateral – normally a property, a car or a certificate of deposit which the lender can repossess should you default on a loan payment.


Bank statements

Lenders may request to see several weeks of bank statements; this is a way for them to check your outgoing expenses relative to your income. All of this information will help a lender to determine whether or not you can afford to repay your loan and keep up with the monthly repayments.


Enlist a co-signer

Another action that may enhance your likelihood of loan approval is to apply with a co-signer. This could be especially helpful if you have poor credit or do not meet some of the loan requirements by yourself. The co-signer will be equally responsible for any repayments and, by signing, is agreeing to pay any payments that you may not be able to make; this makes the deal less risky for lenders.


Loan alternatives if you are self-employed

There are different options available to you if you are self-employed but do not wish to take out a loan.


Credit cards and cash advances

If you are unsure about taking out a loan or, for whatever reason, you cannot be approved for a loan, a credit card may be a good option for you. When used responsibly, credit cards can help you to build up your credit score and create a positive credit history; all of this will make you more likely to be approved for a loan in the future. Additionally, depending on the card that you choose, you could benefit from air miles, reward points or cash back which could help you save money in the long term.

With a credit card, you may also have the option of a cash advance – this is a short-term loan that allows you to withdraw cash from your credit card account. This typically incurs a higher APR than for credit card purchases but may be a good way of securing short-term cash funds.


Home equity loans

If you are a homeowner, another option for borrowing money may be to take out a home equity loan or a home equity line of credit (HELOC). The difference between a home equity loan and a HELOC is that the loan works with fixed installment payments whereas a HELOC means you only make payments on the amount you borrow. To take out a home equity product, you may need to verify your self-employment income by showing recent tax returns but because you are borrowing from your home equity, rather than from a lender, it is typically easier to be approved.