Can a Freelancer Get a Small Business Loan?

In modern society, it is increasingly common for people to be self-employed. The last century has brought the dawn of a new era where people can be their own bosses, and with that comes a lot more freedom.

There are two main ways that people become self-employed, they either set up their own business, or they freelance. 

Freelancing is great for so many people because it gives a lot of freedom. You can take on your own work as and when you need it, and you are not restricted by some of the business regulations that small businesses are.

But, even if you aren’t your own business as a freelancer, you will still likely need money to get the equipment you need to get your business on its feet.

But getting funding as a freelancer is no easy task. In this guide we’ll be giving you all the information you need to answer the question ‘Can a freelancer get a small business loan?’.

The Definition of a Freelancer

Before we get into the funding options available to those who are freelancers, let’s take a look at exactly what this means.

If you are new to running your own business then there are lots of different bits of jargon that you might not understand. 

The difference between being self-employed and being a freelancer probably being one of them. So let’s take a look at what these different terms mean.

There is often confusion over these two terms because they are very similar to one another. Both freelancing and being self-employed involve working for yourself, and being your own boss.

The only difference between the two is that the term ‘self-employed’ is more commonly used to describe being the owner of a small business (that you have set up yourself), and freelancing is more commonly used to describe someone who works for themselves.

Both freelancers and those who run their own businesses have the ability to take on their own work, as and when they want to. But, there tends to be more responsibility associated with owning your own business and being a freelancer.

The issue when it comes to getting business loans as a freelancer is that you aren’t technically a business. You cannot be a business owner if there is only one employee, and that employee is you.

So, this can make applying for funding rather difficult as a lot of business loans are not available to freelancers.

This is particularly frustrating, as freelancers have just as much equipment and other tools to buy as small businesses, and yet they are restricted from accessing a lot of the loans which small businesses get access to.

Why do Freelancers Struggle to Get Business Loans?

We’ve already touched on this briefly, but let’s just reiterate that getting business loans as a freelancer is a struggle.

We said earlier that it is because freelancers aren’t technically a business, but this isn’t 100% true. As a freelancer you are a business, but the issue that makes things very blurry is that the business is you. 

With those who are self-employed with their own company, they will keep their business and personal life completely separate. But with freelancers, these lines quickly become blurred.

The main reason that this gray area impacts loan applications for freelancers is because lenders like to see a point of differentiation between personal and business life.

This is very difficult for freelancers to do as their personal and business taxes are reported and filed together.

So, while a self-employed person with their own limited company will separate their business taxes separately from their personal taxes, freelancers do not.

This isn’t the freelancers fault, this is simply the way that taxes work for those who are in this line of work.

In fact, it is one of the biggest benefits of being an independent trader. But, unfortunately, this thing that makes your life easier makes the lives of lenders a lot more difficult.

When any lender offers a loan to an individual, they have to weigh up the risk of lending to that person.

Most lenders will require a lot of information from people who are looking to lend money, one of the key things being information about their taxes.

When a lender sees that you, as a freelancer, are submitting your taxes jointly, they might find themselves in a dilemma about lending to you.

This is because most lenders look for a point of differentiation between you and your business, but with freelancers this clear line does not exist.

Can a Freelancer get a Small Business Loan?

In short, yes, freelancers can get small business loans. You just have to be aware that this isn’t going to be a simple process before you enter into it.

We mentioned earlier that banks and lenders are generally wary of lending to freelancers because there is no point of differentiation between them and their business. But let’s take a deeper look at the reasoning behind this.

When you apply for any small business loan, you will need to supply the lender with a lot of different documents.

In this way, applying for a business loan is fairly similar to applying for a personal loan as you are essentially providing the lender with proof that they can trust you with their cash.

But the difference between applying for a business and a personal loan is that you usually have to submit double the information for a business loan than you would for a personal loan.

This is because the lender wants to look at your own credit history and also the way in which your business operates financially.

When you apply for a small business loan as a freelancer, you will not be able to provide all the documentation in a way that the lender might like.

This is because your personal and business taxes are filed together, so the lender can only really look at your personal financial history.

This is because it will be very difficult for them to tell the difference between what was your personal finances, and what was the finances of the business.

However, this doesn’t mean that getting a small business loan as a freelancer will be impossible, it simply means that it will be tricky.

It also means that there is a higher chance of you being rejected by a couple of lenders before you find one that will offer you the funds.

Additionally, it means that your personal finances will have more of a bearing over whether you are approved or not. 

So, if you have a poor credit history or any financial irregularities, a bank might be more likely to reject your application than they would if you were self-employed with a small business.

But, as we have said many times, difficult does not mean impossible. So, let’s take a look at some other financial options you have as a freelancer.

Loans and Finance Options for Freelancers

Even though getting a small business loan as a freelancer can be tricky, there are actually quite a few different avenues that you can look at.

It might take a few different tries to get a small business loan, but even if you are a freelancer, there will be a lender out there who is happy to give you their money. So, let’s have a look at some main options available to you.

  • SBA Loans

If you’ve researched small business loans for freelancers then this is probably a name that you have seen coming up time and time again.

SBA stands for Small Business Administration, and they are a government agency set up to help support small businesses and those who are self-employed. 

These loans are not issued by the SBA, they are instead given by banks, but they hold less financial risk for the lender. So, this might be a good loan to apply for.

  • Different Lenders

Most high-street lenders have very strict rules and guidelines for approving applications. So, if you are struggling to get a loan with one of these lenders, try out something a bit different. 

There are now lots of excellent online lenders that offer great interest rates and excellent support for freelancers, so this could be another route to go down.

Summary

In short, yes, a freelancer can get a small business loan. However, it is trickier to apply for a small business loan as a freelancer than it is if you have your own limited company that you run.