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Your freelance life likely involves some degree of hustle—juggling projects, attracting new clients, keeping odd hours. But it’s worth it for the flexibility, lifestyle, location, pay structure, and hours. What happens, though, when a sudden business opportunity arises or the unexpected occurs, and you need cash as soon as possible?
That’s where the fluid and flexible world of freelancing can come to a screeching halt. Sometimes, when you’re at the whims of others, waiting on payment, you’re not quite as independent as you wish you were.
If cash flow is an issue, but you need money to spend, can you get a business loan as a freelancer? It’s a great question—with a nuanced answer.
4 red flags a lender sees when a freelancer applies for a loan
Let’s begin with the unsurprising part: As a freelancer, you’ll have a harder time than a corporation getting a business loan. Unfortunately, some of the reasons why you love freelancing in the first place are the very same reasons why lenders will look at you as a risky candidate.
And, of course, a lender is always trying to mitigate risk to make sure they don’t lose their money.
As a sole prioprietor, there’s no distinction between owner and business. Although there are some huge advantages to being a sole proprietor, that’s a big risk to a lender. If an unhappy client decides to sue your business, for instance, you’re personally liable. Sole proprietors are inherently exposed to risk in this way—and that’s a tough sell for lenders.
Relatedly, there’s a good chance you freelance because you have a unique talent. That’s excellent—but it’s another problem for lenders, who see your singular talent as an inherent risk. Ever watch Shark Tank and see investor Kevin O’Leary ask a business owner what happens to his company if he gets hit by a bus? It sounds harsh (and, yes, it is), but what O’Leary means to say is that in case anything sidelines you, no one can keep your business generating revenue.
Business loan applicants are expected to submit their taxes for lenders to evaluate—both business and personal. But as a freelancer, you’ve likely filed both together. That’s tough for your potential lender, who isn’t able to distinguish between your personal and business finances. They won’t be able to make important judgments about your cash flow, revenue, and other factors essential to determining your potential to pay back your loan.
Although flexibility and freedom is important to you, it’s a would-be nightmare for a lender. They see the potential for dry spells during which you’re not getting work—and, subsequently, not able to pay your loan. You might think of seasonal businesses, which also have up-and-down months. The difference here is that have predictable revenue trends, which is much more favorable for a lender.
The best business funding options for freelancers
So, yes, there are some hurdles for freelancers looking for traditional business financing. But you can absolutely get a loan as a sole proprietor. Here are a few great options if you’re looking for cash-flow relief:
Business credit cards
The quickest and easiest solution by far is a business credit card. You can, of course, benefit from all of the different cash back rewards or travel points that you earn from business spending. But if you qualify for a 0% intro APR card, you can essentially get a free loan for as long as the intro period lasts—and some cards offer 15 months.
Even if you don’t get a 0% APR card, many cards offer the possibility of cash advances. Although interest rates on these advances can be high, having the option is great for freelancers in a pinch. And no matter what, you’ll be building your business-specific credit—which is huge if you want to work toward a future loan.
These business loans are lump sums often meant to be repaid in daily or weekly payments in less than a year—sometimes, only a few months. Short-term loans can be a good option for freelancers because you can be approved quickly, and some online lenders don’t have super-stringent credit requirements for borrowers.
They tend to have higher interest rates than longer-term loans. But if you’re in a bind, this financing can really help.
Business line of credit
One more excellent idea to help with cash flow is a business line of credit. Many online lenders can approve you very quickly for a high balance that re-ups (aka “revolving”) every time you pay it back. Plus, you only pay interest against what you draw.
A lot of businesses—freelancers and major corporations alike—keep a line of credit in the wings for lots of different uses. So, if even if you don’t go this route now, you can always apply—it might be a good fall-back option for later, too.
Improving your business loan odds
Theoretically, sole proprietors can access practically all of the financing options that S-corporations can. But the part you can’t control is how a lender views your risk—and that’s what affects your approval.
You always have the option to change your business entity filing—and if you want to have better loan odds, you should. Compared to freelancers, corporations have higher success rates securing loans. At the end of the day, registering as LLC can give your business more credibility. It can also offer you tax benefits and legal protections.
Meredith Turits writes about small business and finance—and has spent plenty of time as a freelancer herself.