Installment loan lenders usually have a stricter application process for those who are self-employed. For people who get employed, they only need to show 3 months of a paystub. The difference between borrowers who are employed and borrowers who are self-employed is that those who are employed have a stable income.
For self-employed borrowers, their monthly income can fluctuate so the lender has the lesser assurance of your income level. This is why you need to submit more paperwork as income proof if you are a self-employed. The purpose of the lender requiring you to submit more paperwork is to determine whether you have a reliable income.
If you are someone who earns a living as a self-employed, you should prepare at least 2 years of income proof. They will calculate your average annual income by dividing the total of the annual income of the two years by two. For example, if you earn $60,000 in the first year and $80,000 in the second year, they will record down your average annual income as $70,000 even though you may be earning more this year.
Some of the income proof that they usually require from self-employed applicants are income tax returns, profit and loss statement, deposited checks, and bank account statement. When you apply for the loan, you are authorizing the lender to obtain the tax return from the IRS. It is important that you submit copies of the paperwork together in neat sequence. If you have good documentation records, the application process will be smooth and they will soon approve your loan.
The lender will put emphasis on the net income instead of the gross income you earn. The net income is the gross income minus all the expenses of your online business. Some self-employed borrowers may feel frustrated about having to file complicated paperwork but these policies are designed to protect the borrowers. The lender does not want to extend the loan to risky borrowers and their aim of setting up the complicated procedure is to ensure that they are able to afford to make the monthly repayment.
The requirement for applying a personal loan is different than the requirement for a business loan. For a personal loan, the loan approval decision is based primarily on the income tax return. If you are applying for a business loan, they will check your business to see if it is making or losing money. If you are planning to get a loan, you should always document all your financial history.
It can be hard to obtain a loan if you are self-employed for less than 2 years. When you are submitting a loan application, make sure your credit score is accurate. If you can put down more down payments, you might be able to get approved faster.