A loan for the self-employed – what needs to be considered?
Basically, it is more difficult to get a loan when you are self-employed. Private borrowers have much greater benefits and can also benefit from a much lower credit check. The self-employed usually have to submit a so-called economic analysis, since the income usually fluctuates and is therefore less secure. Banks intend to hedge against a potential default.
There are some helpful tips
If some important aspects of a self-employed loan are taken into account, there should be no problems and the loan should be readily available. As already mentioned above, entrepreneurs must in principle submit a economic analysis. This provides information about the economic situation of this company and often includes several pages. The bank checks all the details very carefully.
In addition, it is customary that the self-employed presents a so-called income statement. The statement should detail the income or loss of a company within a financial year.
This way, the perspective of the company can be better estimated. The income statement must be prepared in accordance with the principles of proper accounting and must not contain any errors – otherwise criminal consequences may follow. In general, entrepreneurs also have to pay a higher interest rate because the risk of default is higher.
Fluctuating revenues make the banks uncertain. The risk of default is therefore financed by higher interest rates. But there are many ways and means to keep the interest burden on a loan small.
Loans for the self-employed – what are the chances?
For example, if the self-employed person has collateral such as real estate, the bank’s risk is minimized – depending on the size of the loan. The lower probability of default is therefore rewarded with a smaller interest rate.
It is also fundamentally important what the loan is used for. Investments that serve corporate purposes and are easy to liquidate are less of a risk. One example would be a service vehicle.
Fixed assets – such as machines – are not easily liquidated. There is a higher interest rate, as in the case of a corporate bankruptcy may arise sunk costs. In any case, it is recommended to do a credit comparison to find out the cheapest offer. The differences are usually very big.
On many Internet portals, such a comparison can be done very easily and quickly. In addition to interest, all other modalities of the loan agreement should be taken into account. This includes, for example, the possibility of special repayment.
Which loan conditions make sense?
In economically strong times of an entrepreneur, a special repayment offers very well, because so interest can be saved. For a balanced interest rate comparison, the annual percentage rate must be considered. Only this interest rate provides a usable benchmark. In addition, the loan agreements of different banks also have different terms. Here it must be weighed, which run time seems meaningful.
On most Internet portals also a loan calculator is also offered, in which the borrower has the opportunity to enter his individual needs.
The computer then filters out all suitable loan offers. Thus, in the calculator in addition to the term and the desired loan amount can be entered. Lastly, loans can also be obtained cheaply via a third-party liability. This is called a guarantee, which can lead to a lower interest rate because the guarantor is liable in case of doubt.
Tradespeople, to which each self-employed entrepreneur and freelancer counts, have in contrast to employees not a constant monthly salary. The income depends on the order situation. If you do not work, for example, during illness or vacation, there is no income or profit.
If a self-employed person is interested in a loan, be it to finance investments or to bridge liquidity bottlenecks, it is not possible to apply the same standard of evaluation as for employees. Depending on the purpose of the financing, banks or investors may be considered as lenders. Under certain conditions, state subsidies can also be claimed.
What are the hurdles for self-employed loans?
First, the trader must convince a bank or an investor that his business is bearing fruit and survives. If the potential financiers do not have much faith in the borrower’s concept and economic capabilities, they will invest only small amounts and demand high interest rates.
Before a financier checks whether he can or wants to offer a loan, countless forms must be completed and evidence must be provided. This bureaucratic effort leads to displeasure with the loan seeker, if he has submitted countless documents and then receives a rejection.
The default risk of the loan should usually be covered by insurance. The financiers, above all banks, like to demand a comprehensive insurance against occupational disability, insolvency and death. These insurance policies lead to additional monthly fixed costs and burden the liquidity.
Conditions for granting loans to the self-employed
An essential condition is the proof of income. This is difficult for business start-ups. As a rule, a business plan has to be presented here which contains best-case and worst-case scenarios. Those who have been self-employed for some time show their income through profit and loss statements or balance sheets. Alternatively, banks or investors accept a BWA (business evaluation).
In addition to the income, the lender assesses the creditworthiness of the person seeking credit. The financial reliability of payments shows to what extent the financier can count on easy loan repayments.
Collateral should be provable to support a positive credit decision. Real estate, office equipment, private assets facilitate the loan commitment. The risk for the borrower is that the collateral provided is lost if it fails.
A business location in Germany is a prerequisite for lending at most banks.
Persuasion is beneficial when talking to bankers or investors. This “soft factor” should not be underestimated. If the self-employed person is convinced of his company and its success, it can also convince others.
Creative of self-employed loans – but how?
If the collateral does not suffice or the business plan is not convincing, alternative private investors can be sought. In times of low interest rates on savings, many individuals are looking for more lucrative investment opportunities. The required capital can be distributed among several people, making the investment manageable for the lenders. This option is only advisable if loan repayment is easily possible. Otherwise, negative reviews will permanently damage the corporate image.
Supplier loans are a cheap way to earn money. Many suppliers provide free loans when they meet their primary needs. However, there is a risk of late payment if the supplier immediately forfeits the balance.
Anyone who needs money in the near future, but knows neither the exact amount nor the exact time, suitable for the framework loans. Here, the trader is granted a credit line. How much he retrieves and when is left to the borrower. Depending on the income situation, the loan can be repaid in full or in part. Interest is calculated only on the amount actually used.
A loan from the Employment Agency can also be considered. There is help for start-ups who have little equity capital and only have to endure the initial dry spell after the road to self-employment. The employment agency may apply for own resources if the bank does not grant credit – proof must be furnished. This alternative is only suitable for entrepreneurs with low capital requirements.
5 tips to help with the self-employment loan
1. Be prepared
In order to increase the chances of obtaining a favorable loan, all necessary documents should be prepared and checked in advance. The following questions must be answered: Is there a BWA, profit and loss account or balance sheet that shows a positive result? Does a business plan exist? Which risk insurance policies have been concluded? Is a good credit standing provable – am I a reliable payer?
For safety’s sake, apply for a private credit self-assessment. Convincing arguments, why lending to the bank is a good deal.
2. Provide collateral
Check which collateral can be offered for a loan. What should be financed in concrete terms? Is a security assignment possible to secure the financing? Are there any plots of land or real estate that can be brought in? Is there any moving goods that can serve as security? Can a guarantee be considered?
Is there an additional borrower who can provide collateral? Collateral increases the likelihood of obtaining a loan on favorable terms. However, it must be remembered that in the event of a credit default, the collateral falls to the lender.
3. Check creative loan forms
In addition to the loans from banks or investors, there is also the possibility to receive money from private individuals. For private investors to invest their money, it must be a lucrative, serious offer. The risk should be spread over several people and the individual amount should not be too high. To avoid damage to the image, this option should only be selected if the borrowed money can be safely repaid.
Another option is to obtain free loans from suppliers. If the main purchasing volume is covered with them and the repayments are made regularly, this is a cheap option. Frame loans are an alternative to the classic installment loan. Here, a credit line is set, which can be fully or partially exhausted and repaid.
4. State funding
The state also supports self-employed by very favorable conditions, a pro-rated indemnity and fixed interest rates. Funding is provided for investments, operating resources and company acquisitions. Alternatively, financial help can be obtained from the Employment Agency. In addition to a start-up subsidy, the purchase of material is possible. The condition is that the bank has refused a loan. Furthermore, the subsidy amount is limited.
5. Do not be discouraged
Last but not least, stamina is needed. Even if the first request does not make a positive decision – do not give up! There are many ways to get a loan or a cash injection. The classic ways, such as banks and investors, are not successful, then new paths. Your own creativity knows no bounds here.
If you want to be successful as an entrepreneur, you have to go new ways. In addition to the classic forms of credit and lenders, there are others. Just look outside the box and ask in the neighboring countries.