Traditional banks have tightened lending standards in response to the expected unfavorable trend in the delinquency rate.
Self-employed individuals saw their business activity decline considerably during the pandemic, so the tightening of bank financing is making it difficult for them to return to normal.
They must also contend with a continuous rise in raw material costs.
In this new context:
Is it possible for a self-employed person to get a loan?
In theory, yes; in practice, it will be much more difficult than for a salaried employee with a fixed paycheck.
This is one of the additional challenges faced by these self-employed professionals, who typically have very little support.
Since, often, getting a loan as a self-employed person is practically impossible.
Do you know what other alternatives are available?
Banks are more reluctant and demanding when it comes to approving a loan for a self-employed person.
It’s not that they have anything against this group, but they typically penalize them for the following reasons:
1. They lack recurring and stable income. They do not have a steady, fixed paycheck over time.
2. It is essential to demonstrate personal creditworthiness.
This creditworthiness depends, to a large extent, on the performance and profitability of the self-employed individual’s business.
Typically, self-employed individuals apply for a loan when they face financial shortfalls or want to pursue business opportunities.
When this happens—and given that these individuals’ income is contingent on circumstances—it’s often a time when they’re earning less.
3. They must submit additional documentation.
This ranges from proof of VAT and income tax payments to bank statements, including the most recent Social Security statements.
4. Generally, their debts and monthly payments must not exceed 35% of their income.
This percentage includes the payment on the loan requested by the self-employed individual.
In short, they present a higher risk and instability profile for banks.
Their income is subject to market fluctuations and the inability to take sick leave.
For this reason, invoice advances for the self-employed and other less traditional financing options often become the solution.
Although banks still account for 80% of financing sources in Spain, in countries like the United States that figure has dropped to 30%.
If you’re self-employed, there are other ways to get money available to you.
Invoice advances for the self-employed are just one example.
These non-bank options, known as alternative financing, offer you—as a self-employed individual— significant benefits:
a) Obtain the necessary liquidity quickly and easily
b) Diversify your sources of financing
c) Get financing tailored to your needs
d) Simplify the financing process. These providers typically require less paperwork than traditional banks.
There are many different types of alternative financing available to the self-employed. For example, crowdfunding, peer-to-peer lending, or finding a business angel. However, there are simpler and more appropriate options that can be implemented immediately and are particularly beneficial.
These include the following:
A) Discounting promissory notes.
B) Factoring.
C) Confirming.
These options depend directly on the self-employed individual’s outstanding receivables.
Consequently, they do not jeopardize the viability of the business.
Simply put, a future receivable is assigned in exchange for having access to those funds now.
This allows us to properly manage our cash flows and have the liquidity necessary for the smooth operation of our business.
At WorkCapital, we specialize in customized financing for businesses and self-employed individuals.
When you contact us, you’ll have access to specialists who can analyze your situation as a self-employed individual and provide you with a tailored solution.
Through a detailed analysis conducted with the utmost transparency, your business gets what it needs quickly and securely.
This analysis is provided free of charge, with no obligation, and results in one or more non-traditional financing proposals.
From invoice advances for self-employed individuals to a discount on promissory notes.
In any case, we provide comprehensive solutions—not one-off fixes that could jeopardize the future of your project.
This is something that happens all too often with loans for the self-employed.