Yes, you can get a loan if you are self-employed, but some lenders might be stricter with this and you may need to provide around 3 to 6 months of proof of income.
For the majority of UK lenders, you can always be considered and approved for a loan provided that you have a regular income, good credit status and can afford monthly repayments.
With over 5 million self-employed people in the UK, the nature of self-employed work means that your income may fluctuate and not always be certain. But provided that you can demonstrate stable and historical earnings, you can apply for a loan and get the funds you need, whether it is a short term loan, peer to peer loan
or a mortgage.
- You can definitely be approved for a personal loan or mortgage if you are self-employed
- However, UK lenders are much stricter when it comes to approving self-employed people because their salaries are not always certain
- To be eligible for a loan as a self-employed person, you may need to provide proof of income that dates back 3 or 6 months - and you will also need to have a good or fair credit score and be able to afford repayments
Why are lenders stricter when it comes to self-employed borrowers?
UK banks and lenders generally take the view that people who are self-employed are more likely to experience fluctuations in their monthly income and salaries. When compared to someone who is full-time employed with a company, they should maintain the same salary (and bonuses) if they maintain the same employment.
But with self-employed people, their income and work may vary from month-to-month and this means that lenders are a little more cautious when lending them money for large amounts or long term periods.
Lenders also want to be cautious that someone is not unemployed, since anyone can set up a limited company and call themselves self-employed, despite not being in work or earning any income.
But that does not mean that all self-employed people are treated the same. After all, there is a difference between someone who has been self-employed for 3 months and someone who has been working for themselves for over 30 years.
For this reason, if you are self-employed and looking for a loan, you may need to provide extra information to the lender and provide a history of bank statements, trading history and proof of income in order to be approved for a loan.
What information do I need to provide for a loan if I am self-employed?
- Proof of income (minimum 3 months and sometimes 6 months)
- Trading history or annual business accounts
- Proof of limited company ownership
- Any contracts proving long-term income e.g with suppliers or clients
However, please note that this will vary between lenders. Every loan provider has different requirements and for products such as payday loans
or short term loans, only a proof of income may be required. But if you are looking for a new mortgage or to remortgage, you may need to provide more substantial information.
What can I do if I am denied a loan because I am self-employed?
If you have been rejected for a loan because you are self-employed, you still have a number of options.
You may need to look at alternative loans which provide the lender with a bit more security. This could include using a guarantor or some form of collateral like a vehicle, office premises or property - and this could be used as security in order to borrow the money you need.
For larger loans and mortgages, you could speak to a broker who is likely to work with numerous banks, private firms and challenger banks and they are more likely to take a view on self-employed applicants. Plus, a broker works on a no-win, no fee basis, so is more likely to be proactive and help you get a loan offer.
Can I get a loan if I have just started a business?
Yes, there are loans available for people who have just started a business. You may wish to look at different startup schemes and Government grants for businesses
. If you are looking to apply for a business loan, you may need to show trading accounts for around 12 to 24 months. Otherwise, you can always apply for a personal loan
and if you need extra security, consider using a guarantor.