Working in the gig economy can be great when you are a responsible worker. A few examples of self-employment that may be considered gig work are:
- Rideshare driver
- Virtual assistant
- Freelance writer
- Petsitter
- Food delivery
While employees receiving a regular paycheck from traditional work may enjoy certain perks, there is a unique kind of financial freedom in self-employment and gig work. You have control over your schedule and workload, you don’t have to worry about sick leave, and you are essentially your own boss.
But, sometimes, not receiving a regular paycheck can be a bit of a burden. What happens when workers in the gig economy need money but don’t have an incoming payment scheduled for a while? A situation like this can leave people feeling stressed and worried. Suppose you don’t have a regular income deposited into your bank account every two weeks. In that case, a loan can be a helpful tool in taking care of unexpected expenses until you get paid again.
But what kind of lender is best for gig workers? Are certain loan products better suited for self-employed individuals? Take a look at the different types of loans for gig workers, and decide which one is best for you!
What Kinds of Loans Are Available for Gig Workers?
There are many different kinds of lenders and loan products, providing gig workers with plenty of financing options. Instead of asking a family member for money, here are some loan options gig workers may consider when they need funds.
Business Cash Advance for Entrepreneurs
Small business owners may be able to utilize a business cash advance if they need extra money for their own business. When there isn’t enough business income to cover necessary expenses, large and small business owners can take out a special kind of cash advance specifically for businesses. While you are unable to use a business cash advance on personal expenses, you may use it for payroll, client expenses, or anything else directly related to your business.
Credit Card Cash Advance
You may consider a credit card cash advance if you have expenses outside of basic business needs. A cash advance on a credit card allows you to obtain the cash you can use for your personal needs, business needs, or both! However, keep in mind that interest rates on a credit card cash advance may be a bit higher than regular credit card purchases. So unless you have the ability to repay your credit card balance fairly quickly, you may not want to utilize this kind of cash advance.
Payday Loan
If you have a less-than-perfect credit history, you may be familiar with payday loans. A payday loan is a kind of funding marketed towards individuals looking for quick cash until their next paycheck. Payday loans also have incredibly high interest rates, making them a problematic loan option. Unless you can pay off your loan balance in two weeks or less, you probably wouldn’t want to get a payday loan.
Personal Installment Loan
A personal installment loan is a type of personal loan that can give people of all credit types access to money. With benefits like a simple application process, flexible payment schedule, and competitive interest rates, personal loans are a popular option for people looking for quick, affordable funding.
How Can Gig Workers Qualify for a Loan?
Gig workers and anyone else facing financial challenges can turn to a loan when they need money. Most lenders will deem you eligible for a loan as long as you meet a few simple requirements and turn in several documents. Here are a few things lenders will ask for before they can approve you for a loan:
- Government-issued photo ID
- Proof of residency
- Proof of income
- Bank account info and social security number
- A few references
Along with requesting the above documents, lenders will also have a look into your credit and financial history. Lenders look into credit history mainly to confirm the applicant has provided correct information and is not currently going through pre-bankruptcy counseling or the general bankruptcy process.
Before you sign any kind of loan contract, make sure you read your agreement and ask your lender if you have any questions. Security is important when getting any type of loan. Make sure you can securely connect with your lender and clarify anything you are unsure about before signing your loan agreement.
How Can Independent Contractors Who Are Self Employed Prove Income for a Loan?
When going through the loan process, lenders will typically ask for proof of income. The most common document borrowers used to prove their income is a pay stub from an employer. But self-employed individuals and independent contractors working in the gig economy workforce do not always receive pay stubs. If you are a self-employed person doing contract work, you may be wondering what kind of documentation you could use to prove your income for a loan.
Here are some documents self-employed workers can use as proof of income for loans:
Bank Account Statements
Instead of a paystub, self-employed workers can provide bank statements to prove their income. Simply contact your bank or use your online account to view your deposit and withdrawal history. From there, you show lenders the payments you receive from your gig work to prove that you have a regular income coming in.
Tax Documents
Alternatively, you may also use a tax form instead of a bank statement to prove your income. Contractors will typically fill out a 1099-NEC tax form before starting their work. At the end of each year, this tax document will show the total money earned, or the gross income, brought in by a specific contract job or gig.
What Kind of Credit Score Do Gig Workers Need for a Loan?
Your credit score will undoubtedly affect the loan type and loan details you may be eligible for as a gig worker. Credit reporting agencies take note of certain financial activities to determine your credit score and credit report. Lenders and other financial institutions will then use those reports to determine if you qualify for their loan product or other financial services.
The credit score algorithm credit bureaus use when compiling a report includes activity and behavior like:
- Whether you’re on time with your bills and payments
- How long you’ve had an open and active credit account (such as a checking or savings account)
- Different types of credit you have (loans, credit card balances, student debt, etc.)
- How often you apply for new credit (or how many hard credit checks you have on file)
- Your overall income-to-debt ratio
If you work in the gig economy, have consistent income coming in, and stay on top of your due bills, credit bureaus and lenders will view those habits in a positive manner. If you have high or fair credit, lenders are more likely to approve you for a loan. Certain loan products, like online installment loans, have options available for individuals with good or bad credit.
Thankfully, there are plenty of loan choices available for gig workers. You don’t need a traditional nine to five job to qualify for affordable funding when you need it!