5 Best Personal Loans for Contractors

Tom BurchnellReviewed by

We all need some help from time to time. That's why the loan industry exists. You go to the bank (or the bank's website), show them you can repay them, and you get the money you need.

Sometimes, though, it seems like personal lending wasn't designed with independent contractors in mind. The loan application asks for recent pay stubs or your employer's tax information. You tell them that you're an independent contractor, and suddenly they need a lot more documentation to verify your eligibility.

Personal Loans for Contractors - Who Needs One?

According to the IRS, an independent contractor is a professional who provides services to other businesses or individuals. An independent contractor's payers do not:

  • control how the contractor does the work,
  • determine payment schedule, reimbursements, or other financial aspects of the relationship 
  • provide the contractor with an employment contract or benefits, or 
  • maintain an ongoing relationship with the contractor after the job ends.

If you fall into this category, you don't get the kind of paychecks that banks accept for loan approval. Instead, you need to offer alternative documentation.

Applying for a Loan as a Contractor – Gathering the Documents

As an independent contractor, you aren't able to produce an employment agreement. That makes you a bigger risk for a lender because they have less proof that you will have ongoing income. You have to prove that your finances are strong enough for the lender to take the risk, and this requires a bigger stack of paperwork.

It's very likely that you will need to provide a lender with

  • your credit score 
  • information about existing loan obligations 
  • at least one year of tax returns 
  • an estimate of your typical monthly income 
  • personal identifying information

Paperwork requirements may vary among lenders. If you have these documents ready, however, you can usually provide whatever an application requests.

5 Best Loans for Independent Contractors

1. An Unsecured Personal Loan

If you have good credit and detailed income records, your best bet may be to apply for an unsecured loan. These loans don't involve collateral, so the lender can't take your property if you default. They can, however, send your bill into collections and damage your credit score.

Also, because lenders can't use collateral to reduce its risk, they might make up for that risk by charging you a higher annual percentage rate (APR) than they would demand from an employee. 

If You Don't Qualify

If you don't qualify for an unsecured loan, you might be able to apply for a secured loan. To get one of these, you have to pledge a particular asset that the lender can seize if you don't pay back the loan. Cars, savings accounts, and CD's (Certificates of Deposit, not Compact Discs)  are common examples of collateral for secured loans.

2. A Variable-Rate Loan

As its name implies, a variable rate loan includes an interest rate that is subject to change. These loans usually offer lower initial interest rates than fixed-rate options, but that is because you agree to carry the burden if interest rates rise. The risk tends to be greater the longer you have the loan, so a variable rate loan might be ideal if you plan to pay off the loan quickly.

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When It Works

Variable-rate loans can be great for you as a contractor if you get lump sum payments irregularly, as long as you have a stable financial cushion. That way, if interest rates rise and you need to pay back the loan quickly, you don't have to wait until your next check comes in.

3. A Personal Line of Credit

A personal line of credit lets you get approval for a particular amount, but you don't have to use all of it. You can borrow from that line of credit up to its maximum and only pay interest on what you take. Usually, repayment starts immediately and requires a minimum rather than a set payment, much like a credit card.

These loans can work well for independent contractors because they let you fill in the gaps when income sags. It doesn't require collateral, but it does require an excellent credit score, usually at least 680.

4. A Debt Consolidation Loan

Independent contractors have to pay for things that employees often have covered, from office supplies to workspace rental fees. These expenses sometimes add up to more than you have coming in, especially if your business has natural ebbs and flows.   

Contractors in this position may benefit from a debt consolidation loan. These give you the money that you need to pay back your existing debts.    

Debt consolidation loans tend to work best if:

  1. Your debt is less than 50 percent of your income 
  2. Your credit is good enough to qualify for an attractive interest rate 
  3. You have a reliable enough income to make regular payments
  4. You can avoid getting back into debt

Many contractors find that a debt consolidation loan is easier to repay than multiple separate bills, particularly if the loan has a low interest rate.

5. A Co-Signed Loan

If you don't have a stellar credit history or if you're still building one up, you might get better results with a co-signer.

You'll want to find someone with a solid payment history and reliable income verification. A lender who will accept this person might have more confidence and give you a loan with an attractive interest rate. Assuming you're able to pay it back, it could help you to build a good credit history.

An Alternative to Borrowing

Personal loans are risky, no matter what kind you get. Either you put one of your major assets on the line or you risk damaging your credit score, which is your primary proof of good financial status when you're self-employed.

You do have another option. EasyKnock has created a program called Sell and Stay, which lets you sell your home but remain in place as a tenant. You get all of the equity you have built without taking on a loan, and you don't even have to move.

Don't let your financial struggles in the present cause more trouble in the future. Contact EasyKnock today and find out how you can get the money you need without putting your livelihood at risk.

Tom Burchnell
Product Marketing Director

Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast. 

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