Working as an independent contractor or self-employed person has its benefits, but it also comes with some financial uncertainty. Your earning potential could be greater, or it could be not guaranteed at all. As a result, it’s not uncommon for contractors and self-employed people to have reduced income when work is light. Financial assistance can help.
Just as many businesses will resort to loans for growth or recovery, independent contractor loans can help in much the same way. These loans can provide extra funds for sudden expenses or any increasing costs of your work as a sole proprietor. Below is an overview of several independent contractor loan types to help you pick one that fits your financial situation.
Independent contractors are employees whom businesses hire to temporarily provide a product or service. Some of these temporary arrangements become permanent without the contractor becoming a full-time employee.
Contractors are generally paid either a flat rate or by the hour. While contractor earning potential can be higher, contractors must pay self-employment taxes and take out their own health insurance.
Something else to consider is the difference between a contract worker and a self-employed individual. While these concepts are similar, you might have different financing options depending on which term describes you.
Generally, self-employment is a blanket term for anyone who earns money without being an employee for someone else. An example would be owning and running your own ecommerce store. On the other hand, an independent contractor provides services to one or several clients. Journalists who write for multiple publications are a common example.
While the application process for independent contractor loans isn’t complicated, qualifying for loans isn’t a sure thing. Below are several steps you can take to pick the best loan.
Common independent contractor loan types include:
The eligibility criteria for the above loans are listed below.
The above loans have the below loan amounts and repayment periods.
Paperwork is one of the most important things you’ll need before applying for whichever loan you choose. While not every lender will require the same forms, it’s best to have a copy of all potentially necessary documents on hand.
Additionally, since independent contractors may be considered businesses during the lending process, you might need more documentation than is necessary for personal loans. You may need to provide your business registration documents, proof of identity, bank statements, tax returns, loan history, and more.
A business plan can also be key to qualifying for a loan. Showing lenders that you have a clear vision and a path to get there helps build confidence that you’re a low-risk borrower.
Independent contractors may endure challenging financial situations due to their unique positions within the working world. As a result, there are plenty of reasons they may seek financial assistance at some point. Below are a few of the struggles you might face as a contractor.
Although companies may hire you to provide a service, you're your own boss at the end of the day. That can have its advantages and disadvantages. For one, you have direct control over how much work you take on and greater negotiating power over what you’re paid. But that independence can come at the cost of financial stability.
As an independent contractor, you rely on a steady stream of clients and projects for a sufficient monthly income. It can be tough to predict how many of each you’ll get within any given pay period. That can make it tough to discern how much money you’ll have at your disposal. In addition, there are no employee protections for contractors. If a client suddenly decides to drop you from the project, you might lack legal recourse to get compensated for your time.
In a typical employment situation, the employer covers key business expenses such as software subscriptions and travel. The employer also deducts FICA taxes from an employee’s paychecks. However, as an independent contractor, all those expenses fall to you. You’ll need to consider the cost of equipment, repairs, and taxes when calculating your profits. This need can catch some newer contractors off-guard. However, because these expenses are business-related, you can often deduct them from your taxable income.
One of the main advantages of a steady job that some self-employed workers may take for granted is the benefits. Health insurance plans, retirement funds, and pensions all go away once you resolve to work for yourself. If you want those benefits to continue, you’ll have to pay for them yourself, which can quickly get expensive.
If you’re an independent contractor who needs a loan, options are available. Many of the best loans require a good personal credit score, but there are financing options that can accommodate virtually anyone. Just keep in mind that any money you borrow will need to be repaid, and plan accordingly.
A great starting point for an influx of cash is an SBA loan. SmartBiz® streamlines the application process and lets you know ahead of time if you don’t qualify. In that case, bank term loans and custom financing are also available. Check whether you pre-qualify now to get yourself one step closer to the independent contractor loans you need.*