Finance for the self-employed
Without entrepreneurs who are willing to take risks and live without the comfort of monthly salaries there would be no place to find employment. Small, medium and large businesses are all providers of employment. This being said, it is easier to get a loan or financing when you work for a salary or have ample security. A movie store, for instance, has very little security to offer when requesting a loan. Financial institutions don't take stock as real security, especially not fast moving stock or products that reduce in value in a short time. For this reason the entrepreneur has to look at other means of financing projects or expansion.
Fortunately there are institutions that recognize that business owners have fluctuating income and cannot guarantee monthly repayment of the same amount. To accommodate differences in income due to seasonal markets and large projects that take several months, these institutions offer finance for the self-employed not normally available at the traditional lending institutions. This type of lending is known as self-employment financing or small business loans.
The self-employed persons can borrow money and repay their loans in large sums, quarterly, annually or as pre-arranged. This allows the borrowers to pay more in months where the income is high and pay nothing or less in the slow months.
The self-employed persons can thus pay large sums to make up for periods of no or little income.
There are even repayment holidays when the borrower can request that no payment to be done for a certain period. This type of leniency is necessary for businesses to survive. This type of financing is also available to people with bad credit records. Normally someone with a less than perfect credit record would not be able to get a loan or would be penalized by extraordinary high interest rates.
With normal financing you need to provide proof of income and long term employment. Entrepreneurs cannot always indicate their exact income and expenses. These types of loans don't discriminate against self-employed people for not being able to provide proof of their income.
Downside of finance for the self-employed
There is a price to pay for finance for the self-employed. Higher interest rates are asked and in many instances the loan repayment period can't exceed more than 21 months. Apart from this, a full business plan is required. Security of some sort is still requested and some types of businesses are considered high risk. Even if a mobile phone shop seems like a good idea, it may be that the market has been flooded and that too many of this type of business have folded in the past two or three years. These institutions use certain criteria to establish to credibility of the business before a loan is granted.
If you need finance for the self-employed get the following information and documents ready:
- Social Security Number or Identification Document
- Income and Expenditure for the past three months
- Documents for the collateral that you want to offer
- Proof of home address
- Proof of land line
- Driver's license
- Business registration details
- Tax number
- Proof of business address
- Value of stock and capital goods (inventory)
- Business plan and projections
- If you are purchasing an existing business, provide three to six months financial statements