How to Use a Self-employed Loan To Start Or Expand a Business

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So, you’re self-employed. How does it feel?

Liberating? Exciting? Overwhelming. Daunting… Confusing… 

Let’s face it, the world of self-employment is odd. You’re stuck in a strange limbo between being a business owner and being an individual.

As far as taxes go, you’re technically an individual.

But because you’re simultaneously not an individual, there are also advantages you can take advantage of in the form of business deductions and credits…

And then, because you technically fall under both categories, you’re usually subject to higher tax rates too!

It’s no wonder all this is so confusing for people!

When you aren’t even sure how to define yourself or the work you do, how are you supposed to know where to start when looking for lending options as a self-employed entrepreneur?

Thankfully, acquiring the small business loan you need to grow, expand and scale your business is simple with the right information and guidance.

On this page, you’ll discover our comprehensive guide to business loans and financing options for self-employed individuals! 

Firstly: What Does ‘Self-Employed’ Mean?

Self-employment means that you work for yourself – not for someone else.

According to the IRS, the person who will “carry on a trade or business as a sole proprietor or an independent contractor” is self-employed.

We’re sure you more-or-less knew that already.

The complicated part is that the government recognizes anybody who is a self-employed individual as a small business owner.

Yes, even if you aren’t actually incorporated as a business.

The downside: This means you take on more tax liability than you normally would on your personal tax return.

You pay the portion of taxes that your employer normally makes up.

The upside: Because the government and other financial institutions treat you as a small business, you can claim business expenses and access financial assistance services not available to the public.

Including, but not limited to, loans you can use to expand your business!

What Types Of Loans Are
Available To Self-Employed People?

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Personal Loans

Personal loans allow you to borrow a lump sum of money, then pay the loan back in installments over time. They come in secured or unsecured varieties.

An unsecured personal loan doesn’t require collateral to borrow money. However, this type of loan generally requires a good credit record or a consistent history of income.

A secured loan uses the equity you have in your house as security against the cost of the loan. As a result, this means this type of loan has a lower rate.

Guarantor Loans

Guarantor loans are a popular choice of loan if sourcing a personal loan is proving difficult.

As the name implies, this is when a third party acts as a guarantor for the loan. As long as they have a good credit history, then who they are is unimportant. Although most people choose a friend or family member to be their guarantor.

As your guarantor, they’re responsible for making payments if, for whatever reason, you fail to make them yourself.

Interest rates tend to have higher interest rates than standard personal loans.

Business Loans

This type of loan is made specifically for individuals who require funds to expand their business – remember, this includes self-employed people too! 

Most self-employed loans come from the US Small Business Administration – The SBA.

Read on to find out more about the types of loans they offer.

What Is An SBA Loan?

Funding via SBA loans is the most common way self-employed individuals expand their businesses.

However, there are a variety of loans to consider, and it’s important to choose the one that’s right for you:

  • SBA Microloans (For Up To $50,000)

Microloans are available to small businesses and non-profit childcare providers and are offered to help self-employed individuals improve their ‘business.’ 

The exact details of those improvements will differ for every application, but it could be increasing inventory and supplies, buying furniture, or repairing structural damage.

The maximum repayment period for microloans is 6 years, with interest rates ranging anywhere from 8% to 13%.

  • SBA 7(a) Small Loans (For Up To $5,000,000)

This is by far the most popular scheme when it comes to SBA loans for self-employed individuals.

The loan can be used for almost any purpose relating to the costs involved in expanding your business. You can even use this kind of loan to finance real estate!

The SBA 7(a) interest rate depends on the amount of the loan, but will always have a minimum base rate – known as the PRIME RATE – plus 2.25% to 4.75%, depending on the loan amount and term. 

Loan terms extend up to 15 years for real estate and 10 years for equipment, working capital, and inventory loans.

  • SBA Express Loan (For Up To $500,000)

SBA Express belongs to the sub-category of 7(a) small loans with a few key differences.

They’re a great choice for self-employed individuals who need access to cash quickly. 

This is because, as the name implies, Express Loans can be granted within 36 hours of receipt by the SBA. In contrast, a 7(a) small loan can take 5-10 business days to be approved. 

However, the maximum SBA guarantee for this kind of 7(a) loan is less than the usual option at 50% compared to up to 85%

Interest rates vary from lender to lender but cannot exceed the SBA maximum of PRIME plus 6.5%.

Repayment periods can last up to 7 years.

The SBA offers a service called Lender Match which can help self-employed people find the best possible loan for them and their needs.

This program can match you with a lender in as little as 2 days, so you can quickly get the funding you need to start or expand your business.

Am I Eligible For a Self-Employed Loan?


Your credit score is the main obstacle when applying for a self-employed loan.

Luckily, most lenders will allow you to check your loan eligibility without affecting your credit score. 

This is what’s known as a ‘soft check.’

Although it may seem daunting, these checks allow you to quickly rule out loans that aren’t suitable for you, so you can focus your attention on loans you’re eligible for.

NOTE: Applying for a loan and getting rejected can negatively impact your credit score.

Even if you’re not applying for a personal loan, your personal credit score can still have an impact during the application process.

Aside from a good credit score, you’ll also need:

  • Proof of ID 
  • Proof of Income
  • Proof of Address
  • Bank Statements

You may also need:

  • Your official business license. 
  • A balance sheet showing profits and potential losses. 
  • Personal income tax return statements. 
  • Business tax return statements.

NOTE: A bad credit score doesn’t mean it’s impossible to get a self-employed loan. It may be difficult, but you just have to be patient and accept that you may not get the best rates on the market and may not necessarily get the full amount you ask for.


Lenders always want to know where their money is going, which is why they’ll always ask you why you’re taking out a loan in the first place.

Before you pick up a pen, think carefully about your plan for the future.

It won’t just increase your chances of being accepted, but it will ensure that you have measures in place to ensure you can ultimately repay the loan.

Sometimes, when looking at the bigger picture, self-employed people find that a business credit card or line of credit can suit their needs better than a loan, as these are easier to get approved for, and can help you build your credit score for the future loan applications.

Keep in mind that credit cards tend to have much higher interest rates than loans.

How To Apply For A Loan When Self-Employed

Here’s our guide to easy-to-follow steps when applying for a self-employed loan

Got Questions About Self-Employed Loans, Or Want To Apply For A Small Business Loan With Us?

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