If you’re self-employed, a freelancer, or a contractor, getting access to finance has always been difficult. It’s almost as if the financial system wants to penalise you for having a go on your own, even though that, when you’ve built your business, you could earn far more than the national average.

If you’re self-employed and you’re looking for a payday loan, BestShortTermLoans has prepared this special guide for you about the best way to get access to finance. In this article, we’ll cover:

• Why fewer lenders want to work with the self-employed
• The types of personal loan that the self-employed generally qualify for
• How you can prove your income
• What happens if you have bad credit
• Should you take out a loan if your sales are down?
• Can you take out a payday loan for business purposes?
• How much you can borrow
• How to use BestShortTermLoans to find a self-employed payday loan

Self-employed people generally have fewer lenders who want to work with them

The reason that self-employed people generally have fewer lenders who want to work with them is because lenders only really see risk. An employed person gets a regular wage every month meaning that, once all the bills have been paid, a lender can then see how much is left over that can be used for making loan repayments.

Some lenders require that all borrowers to be in full time employment and a few of them will actually ask for payslips as evidence that a borrower receives the salary they claim on their application form. Lenders now have to be very careful to check that all borrowers can afford to make repayments.

If you deal with a lender or a broker who guarantees that they don’t need any further documentation from you before you apply, this is potentially a scam. Please stay well clear and stay safe.

What types of loan do self-employed people apply for and how much do they ask for?

The three types of loans self-employed people apply for the most are:

1. Short term loans

A short-term loan is normally a loan for between £100 and £2,500 paid back in (usually) equal instalments over 2 months to 12 months.

Short-term loan companies must be registered and licensed with the Financial Conduct Authority (FCA) before they can lend you any money. This is important because it offers you a number of vital protections, including:

You’ll never pay more back in interest and in charges on your loan that the amount you borrowed in the first place. So, if you borrow £350, you’ll never be required to pay more than £350 in interest charges and fees on top of the £350 you took out.
A lender may not charge any more than 8p a day for every £10 you take out (0.8% daily interest)
A lender may not charge you more than £15 if you miss a repayment date and they can never try more than twice to take a payment from your bank account
If you get into trouble paying your loan back and you tell your loan company, they must give you the contact details of a debt charity counsellor who you can choose to represent on your behalf to negotiate a repayment schedule

2. Payday loans

A payday loan offers the same FCA protections as a short-term loan. A payday loan is different to a short term loan because, instead of making multiple repayments, you only make the one. You and your lender then agree on a date you pay back the original loan and the interest you pay in full.

3. Guarantor loans

Guarantor loans are often used by self-employed people to gain access to the finance they need. With a guarantor loan, someone vouches for you that you’ll be able to make all the repayments on a loan on time and in full. If you don’t, then the guarantor steps in to make repayments on your behalf.

If you fail to keep up your payments on the loan and then your guarantor can’t either, then you’ll both be taken to court by the guarantor loan company. They’ll attempt to get County Court Judgements placed on both of you making it easier for them to come into your home to take away valuables that they can sell to pay off some or all of the outstanding amount.

Guarantor loans are generally cheaper than short-term loans or payday loans. With a guarantor loan, you can also borrow more for longer. However, guarantor loan companies have come in for a lot of criticism lately because they don’t have to work to the strict Financial Conduct Authority guidelines that a payday loan or short-term loan company has to work to.

How do I prove my income?

A few lenders have begun linking to borrowers’ bank accounts so that they can get a better picture of how much a self-employed person earns and how much they spend before they make a decision.

It’s “read-only” access so they can see your statements and your balance but not much more – they can’t make any changes. Sometimes, a lender may even postpone taking a repayment until they see that the money is in your account however this is very much the exception and not the rule.

Other lenders will ask that you send them recent bank account statements and bank deposit statements so that they can verify the income you claim to be making on your application form.

Will a lender take into account any benefits I receive if I apply for a self-employed payday loan?

Yes. Many freelancers, contractors, and the self-employed receive Working Tax Credits and Family Tax Credits, particularly in the early part of their career. You may also be in receipt of other benefits.

Most self-employed payday lenders will be fine with the fact that your household receives benefits in addition to the money that you earn. Different lenders have different levels of benefits as a ratio to overall earning that they’re happy with however these levels are not normally publicised on their websites.

Self-employed payday loan brokers do know individual lender’s benefit-income ratio levels so, to save yourself from making potential applications, it may be better to choose a broker in these circumstances.

Will a payday lender work with me if I have bad credit?

Most payday lenders are interested in who you are now and your current personal and financial circumstances – not who you were five or six years ago when you may have had a few money struggles. Although all lenders take credit history into account, it matter much less to payday lenders than it does to banks and mainstream financial institutions.

For a self-employed payday loan, what you need to focus on the most is proving that you can make the repayment in full on the date agreed.

Should I take out a payday loan if my income is down this month?

In most cases, no. You should try to pay for any emergency expenses out of your savings. Alternatively, you should chase any customers up whose payments to you are overdue.

A payday loan should only be considered if you are absolutely sure that you will receive enough into your bank account to make repayment on the due day and that your business won’t be badly affected by having to make the repayment.

Can I take out a payday loan to grow or consolidate my business?

No. Payday loans should never be used to put cash into your business. They are not designed for this purpose and we would strongly recommend that you apply for a business loan through an established provider.

Why do people take out self-employed payday loans?

Self-employed payday loans are taken out for the same reason that other borrowers take out payday loans – to cover financial emergencies. When we’re finding self-employed payday loans for our applicants, the main reasons borrowers give for asking for the money are:

• Car breakdown
• A bill which was expected but much larger than predicted has come in
• Dental treatment
• Eye treatment
• Funeral expenses
• An unexpected delay in income
• Replace or repair electrical equipment in your home

Should I consider a self-certification loan?

Self-certification loans are banned in the UK and they have been since the financial crisis of the late 2000s. All FCA-regulated self-employed payday loan providers, by law, have to check affordability by asking for your income and, if necessary, asking you to provide proof of the income you tell them that you earn.

Please stay clear of websites offering self-certified loans as the companies either lending the money or providing the broker services may not be based in the UK. If they are based in another country, you will not be protected by FCA guidelines.

Should any lender I apply to be regulated?

Any lender or broker you apply to for a self-employed payday loan in the UK must be regulated by the FCA. The FCA provides protection for consumers taking out payday loans and it’s in your best interest to make sure that you enjoy all of these protections as it affects the amount you pay back and how you’ll be treated if you can’t make the repayment on the date required.

Are self-employed payday loans secured on my home?

Self-employed payday loans are unsecured meaning that, if you can’t make the repayment and you then can’t agree on a repayment plan with your lender, your home can not be taken away from you.

Is it worth going for a no credit check self-employed payday loan?

By law, all companies offering self-employed payday loans in the UK regulated by the FCA must perform a credit check as part of their affordability assessment. Please be wary of any company offering to provide a “no credit check self-employed payday loan” as they will not have an FCA licence and it will probably be a scam designed to trick you into paying a broker’s fee and/or to steal your identity.

Should I apply direct for a self-employed payday loan or through a broker?

Best Short Term Loans are brokers – not lenders. What we do is to help you find the few companies happy to offer self-employed payday loans and to match you with the ones happiest to lend to you based on the information you provide us with and your credit report.

Because so few payday loan companies work with the self-employed, finding them can be time-consuming and frustrating, particularly if you need the money for an emergency. Worse still, if you make lots of applications to the wrong companies in too short a space of time, you’ll actually make it more difficult to find a self-employed payday loan provider which wants to work with you because lenders don’t like to see lots of applications.

Let us find the cheapest self-employed payday loan for you

This is how we work. Fill in your details on our online form. Once you press the “Submit” button, our specially-designed and ultra-fast financial computer system matches you straight away with the lenders who have told us that they want to work with borrowers like you.

We’ll then run a credit search on you and send that report to all the lenders who come back interested – one credit search no matter how many companies we approach on your behalf. We then get the final list of offers through from the lenders and present you with the cheapest offer on the very best terms.

And this all takes place in seconds. To start your application with us, please click here.