The immense amount of freedom that you get from being your own boss is what attracts many to be self-employed. You are free to work as per your own schedule; you don’t have to deal with on-road traffic when traveling to and from the office, plus the added advantage of staying clear of the office politics.

But if you are thinking of boarding the ship, think again. The journey of a self-employed person is not that smooth especially when it comes to getting credit. The reason being, lenders are generally hesitant when giving credit to self-employed people (especially self-employed non-professionals) as they don’t have a regular cash flow. To add to it, lenders find it difficult to calculate applicants’ loan eligibility and verify their income proofs. But don’t lose heart; it isn’t that you will not get a loan if you are a self-employed person. The downside is that you will have to pay a higher interest rate and go through a long documentation process.

So, if you are self-employed and are looking for a loan, here’s what you need to keep in mind for smooth sailing:

Keep your Income Proofs Complete and Updated

Lenders are willing to lend to people with steady cash flows which is why salaried individuals have it slightly easy. For them, the salary statement and Form 16 are sufficient proof. However, in the case of self-employed individuals, lenders require more proof to verify the income level and assess eligibility criteria. The following are the documents that most of the lenders will ask as income proof:

  • Income tax return of the past two-three years.
  • Income and asset statements – profit and loss account and balance sheet for the past two years duly audited by a chartered accountant
  • Bank statement of the last six months

Documentation is the key to a problem-free loan. Therefore, make sure all your documents are in place and are updated.

Maintain a High Credit Score

Whether you are a self-employed or a salaried person, a good credit score is a must to get a loan. In this regard, you will have to be careful of a) how you use your credit cards, and b) how you pay off loan EMIs and card dues. If you have taken a loan previously make sure that you pay the equated monthly installments (EMIs) on time. Credit history is one of the most important factors that affect your credit score. And, if you do not have a good score, it’s about time you started rebuilding it.

Apply When Business is Doing Well

As lending institutions take the average income of at least past two-three years, it’s better if you apply in the year you have earned profits. In doing so, your average income will increase and hence chances of getting a loan will improve.

Apply with Your Regular Transacting Bank

The chances of getting a loan from the bank with which you have a current account and are dealing with on a daily basis are higher compared to a new bank.  As the bank is dealing with you on a daily basis and has more knowledge about your cash flows, it is likely that it will give you credit. So, don’t let the cash crunch hinder your expansion plans. Complete your documents and maintain a high credit score and apply for a loan with confidence.


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