Loans for Self Employed with Low Credit Score

Tom BurchnellReviewed by

Are you self-employed and looking to borrow a loan with bad credit? Learn more.

When you're self-employed, things like applying for a loan can be more challenging than they are for employees. Banks and other traditional lenders love the certainty of a stable employment contract. When you don't have that, they make you jump through a lot more hoops.

It can be even harder to find loans for small business owners and self-employed borrowers with bad credit. But let's not go into the details of how or why you might get rejected; let's look at how loans for self employed with bad credit might get approved.

How do you apply?

As a self-employed person, you need extra documentation to prove that you can afford the loan term. Lenders usually ask for some combination of the following:

  • Two years of tax returns, including Schedule C (business profit/loss statement) and Schedule SE (self-employment tax) forms 
  • Bank statements, if you're applying for a secured home loan or small business loan 
  • Your credit score 
  • Your debt-to-income ratio, or DTI

If you're able to provide two or more years of tax returns showing consistent self-employment income, your lender might be less likely to ask for your credit score or DTI. That said, if you're looking specifically for loans for self-employed people with bad credit, you might have more trouble.

What do lenders consider to be bad credit?

Lenders usually evaluate your credit history using the FICO credit score system, which collects information about your borrowing history and rates it on a scale of 300 to 850. The higher your score, the less risk you pose to lenders.  

Technically, there is no rubric for determining whether a credit score is “good” or “bad.” FICO leaves it to the lender to determine how much risk they're willing to tolerate in a borrower. In general, though, this is how it usually breaks down:

  • 720 or higher = Excellent 
  • 690-719 = Good 
  • 630-689 = Fair 
  • 300-629 = Bad

If your score is in the “bad” range, you're not alone. FICO reports that 20 percent of borrowers have credit scores under 600, and another 10 percent is in the 600 to 650 category. Of course, if you're self-employed and your bad credit keeps you from getting a loan, these percentages might be small comfort.

Loans for the self-employed with bad credit

Big banks are less likely to take a chance on someone with bad credit, but there are plenty of lenders out there that will. Whether you are looking for loans for independent contractors or just self-employed - here are just a few loan option examples.

Credit unions

A credit union is a local nonprofits that offer financial services to members. Each one restricts its membership in some way as part of its charter, but some are broad enough that everyone who lives or works in a particular area is welcome.

Because credit unions exist to serve their members and not to make a profit, their lending requirements tend to be more lenient. They look at your entire financial picture and not just your credit score and bank balance, and that means you have a chance to make a case for yourself.

If your score is low, credit unions will probably still require you to pay a higher interest rate, since they have to make up for the risk. And even getting a loan could require the union to conduct a hard credit check, which could make your score drop further.

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Peer-to-peer lenders

Just like Uber changed the way you call a taxi and Airbnb changed the way you book travel, online peer-to-peer lenders are creating a new paradigm in lending. Instead of working through a big bank or loan company, you apply online and match with an individual investor.

Peer-to-peer lending, also known as P2P, tends to be more affordable than traditional borrowing because you're not paying a company's overhead fees. The application process tends to be easier and you might find more options for someone with less-than-perfect credit.

As with any loan, however, you'll pay more in interest if your credit is bad. Combined with the relatively high loan origination fees you'll probably pay, this can make peer-to-peer lending less affordable.

Payday loans

A Payday loan is famous for being easy to get if you have a low credit score. They don't require a credit history or credit score – in fact, they're often called “no credit check loans.” Instead, you write a check for the borrowed amount plus a fee and the lender cashes it when the time comes to repay.

They're intended to be short-term solutions, because they come with high interest rates. Lenders communicate these rates as fees, so you don't always know how much you agree to pay.   

For instance, you might borrow $200 with a $40 fee and expect to pay it back within two weeks. But what you're actually signing on for is an annual percentage rate (APR) higher than 500 percent, and it could keep accumulating. If you can't afford to pay quickly, you can easily end up owing much more than you borrowed.   

Also, if your lender cashes your repayment check and there isn't enough in your account, you could end up with overdraft charges and have trouble getting loans in the future.

EasyKnock: A safer option for homeowners

If you own your home, you may have considered a home loan or home equity line of credit. Both are useful options for many people, but they're not usually friendly to those with bad credit.   

Selling your home is another way to get your equity, but moving is expensive and leaving your home has all kinds of emotional baggage attached.

We enable you to sell your home and remain in place as a tenant, paying rent until you're ready to either move or repurchase the property. You don't need good credit or tax returns, and the application is easy.

In two minutes, you could find out if EasyKnock is an option for you. Don't spend another day worrying about how you're going to make ends meet and improve your credit – check out EasyKnock now. For more information explore EasyKnock’s faqs.

This article is based on research and/or other relevant articles and contains trusted sources. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process.


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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