There are a plethora of types of loans available for self-employed, and each one of them caters to specific needs. And each lender and loan type will have different requirements.
In this article, we’ll highlight some of the most common secured and unsecured loans available for self-employed people:
Secured Loans
The following loan types are secured loans that are offered by various banks and financial institutions:
- Loan Against Property (LAP)
You can avail LAP by mortgaging a commercial, residential, or industrial property. Usually, when you put up a residential property as collateral, you are likely to get the lowest interest rate on your loan.
- Gold Loan
It is a common practice to use your gold jewellery to get a secured loan from banks and other financial institutions. This loan can be helpful in funding the initial stages of your business. Banks usually approve a loan amount that is 70% to 80% of the gold value.
- Loan Against Investment Papers
Your investments, like mutual funds, savings certificates, bonds, and insurance policies may not be available for high liquidity. But they carry an intrinsic value, which you can capitalize on by using them as collateral to get a secured loan from the bank or the financial institution.
Unsecured Loans
Unsecured loans usually carry a higher interest rate than secured loans because the applicant doesn’t have to put up collateral or guarantor. Thus, there is a higher risk factor involved in sanctioning the loan.
The following are the types of unsecured loans offered to self-employed by banks and financial institutions.
- Business Loans
This type of loan is difficult to get approved. Since it is an unsecured business loan, you need to show the lenders that your business is running successfully and that you are earning profits consistently over a period of at least 3 years. Plus, you need to have an excellent credit score; the ideal would be a score of 800 and above.
- Personal Loans
Personal loans are one of the most common types of unsecured loans taken by self-employed people. They have easy to meet eligibility criteria and are the best option if you need emergency funds. There are a wide variety of personal loan lenders and lending platforms in the market, making it easier for you to choose the best from the available options. The personal loan lenders approve your personal loan for business based on your credit score and your repayment capacity.
- Overdraft
Overdraft is an efficient form of borrowing when you need the money urgently. This facility allows you to overdraw from your current account up to an agreed limit. Also, you pay interest only for the time you use the money. Overdraft is an efficient form of borrowing as you pay interest only for the time you use the money. However, to be eligible for an overdraft facility, you need to make sure that you maintain your checking account consistently.
- Government-Backed Schemes
The government has launched several schemes to help self-employed people get their business off the ground or expand their business activities. Several banks participate in these schemes to offer unsecured government-backed loans to self-employed people.