Funding Your Freelance Business: Can You Really Get a Business Loan?

There are plenty of perks to being a freelancer. You’re self-employed—you decide when and where you work, what assignments you take on or decline, and you have complete autonomy over any financial decisions.

So with all this flexibility, you may wonder why anyone would would want to structure their business differently. That is, at least until you go to apply for a small business loan.

Unfortunately, many freelancers realize too late that it can be more difficult than you might expect to secure a business loan. However, don’t let that discourage you or keep you from applying altogether. After all, we said it will be difficult, not impossible!

This article will help you understand why it’s more difficult to get a business loan as a freelancer, and we’ll discuss the funding options you still have available to you.

Why Freelancers Have a Difficult Time Securing Business Loans

As a freelancer, your business and personal taxes are reported and filed together. Since this saves you the headache of having to file your business taxes separately, and means that you only pay a single tax, you may see this as one of the benefits to being a sole proprietor. Lenders, on the other hand, see it as a huge risk.

From a lender’s perspective, if you file your business and personal taxes together, there is no legal separation between your business and your personal finances. So when you apply for a loan, the bank is really just measuring your personal credit worthiness and your personal ability to repay the loan.

As a sole proprietor, you have no protection against liabilities, meaning you will be held personally responsible for any debts or losses to the business. This can make securing a loan difficult, especially since the big banks prefer to approve loans to more established businesses, where the entity itself can repay the loan.

Furthermore—because you’re a one-person team—there is no one to keep the business operating should you face a personal emergency, such as an extended hospital stay. With you gone, the business may quickly fail (or at least take a hiatus!), and that is a risk most lenders aren’t willing to make, since they need to get paid regardless.

What Other Freelance Funding Options Exist?

So if you’re not interested in incorporating your business and you can’t guarantee a perfect bill of health, where can you turn for financing? Although freelancers have a more difficult time qualifying for a business loan, there are still a few financing options worth checking out:

The Small Business Administration. The Small Business Administration (SBA) can be a great financial resource for borrowers who are finding it difficult to meet traditional bank standards. Although they do not issue loans themselves, the SBA guarantees a percentage of your loan, limiting the risk to lenders. The SBA loan programs you may want to look at in particular are the Microloan program and the 7(a) program.

Alternative lenders. You may stand a better chance at qualifying for a business loan if you apply through lenders that have less stringent lending requirements, such as online lenders. Online lenders can be a great financial resource for freelancers because there are multiple lenders and multiple loan products to choose from.

Some online lenders will even let you link your online business accounts to your application. As a freelancer, you can link your online business bank account or PayPal account, or in some cases even your accounting software, as a way of proving your credibility to lenders.

Crowdfunding. Crowdfunding can be an excellent way to fund your business as a freelancer. With this method you don’t have to worry about appearing credible to lenders, as you only need to focus on appealing to your average, everyday people.

While the exact structure of crowdfunding agreements varies between platforms, in most cases the money you raise through crowdfunding is donated or invested in exchange for some type of perk or reward. This means you can enjoy the benefits of extra working capital without having to worry about paying it back down the line. The more people you are able to reach, the more donations you are likely to get!

Grants. Last but not least, you may consider applying for a business grant. Aside from strict application guidelines and having to compete with multiple people for the same money, a grant can be a viable way to fund your business. Plus, this is another funding option that doesn’t require any repayments.

As you can see, working as a freelancer comes with many benefits, but having an easy time securing a business loan isn’t one of them. However, if you’re willing to look beyond a typical bank loan, there are many alternative options to help you get the funding you need for your business of one.