Being self-employed can make work a great deal more enjoyable. Acting as your own boss, you can take on the assignments you really enjoy, work the hours that suit you, and – if things go well – earn a great deal more than you would as an employee. However, it has its drawbacks too. Any freelancer who has tried to obtain a business loan will recognise this immediately. So why is this so difficult?
First, your personal and business finances are inextricably intertwined. On one hand, this is a good thing as it means you don’t have to submit separate accounts or deal with more than one tax bill. However, to lenders this represents a huge red flag – when they consider your application, they are effectively considering your creditworthiness as an individual.
Self-employed people represent a greater inherent risk for one fundamental reason: should the proprietor fall ill, there’s nobody to keep the business operating. A serious injury resulting in a hospital stay could see the business go to the wall and lenders lose their investment.
Let’s look at a few self-employed statistics
According to research by Co-operatives UK, 27% of employees in medium-sized companies and 22% of those in small businesses would rather be self-employed. In fact, 4.6 million people in the UK are now self-employed, accounting for 15% of the total workforce – the highest proportion since records began. Yet many of these people are in a poor financial situation. More than a third of them have more personal debt than those in full-time employment, whilst more than half said they are “seriously worried” about their personal finances much or all of the time. So what can they do when they need finance and banks appear keen to keep their distance?
There are alternatives to banks for business loans
The simple answer is that banks are not the only game in town and there are at least three options you can explore.
The first is alternative lenders, who apply different criteria from banks. There are numerous alternative and online lenders competing for business, meaning that you may be able to obtain advantageous business rates and terms. In some cases, these lenders may allow you to link your online business bank account, PayPal account or accounting software to your application, minimising paperwork and speeding up the process.
Crowdfunding can also be an effective way of financing a freelance business. This method removes the need to prove your financial credibility to a bank, as you simply need to appeal to members of the public. In most cases, the money donated or invested is offered in return for a defined reward, meaning that you don’t need to worry about paying it back in the future.
Finally, there are grants and awards available to small businesses. The application process is usually quite exacting, with fairly strict criteria, but provided you qualify this is an excellent way to fund your business – particularly as, once again, there is no need to repay the money.
Make sure you talk to Cashsolv
As a leading alternative lender, Cashsolv offers a number of innovative business finance solutions to freelancers and other small businesses. If you’re self-employed and need money to grow, we should talk about the possibilities.
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