If you’re a freelancer, an independent contractor, or any other type of gig worker, chances are you’ve experienced difficulty securing loans from traditional sources like banks. Aside from the varying requirements such as proof of income and proof of billing, the time it takes for approval makes them less than ideal for members of the gig economy.
Despite being seen as a riskier borrower class compared to common-law employees, there are still options available for you. Here are some options about how gig workers can still find and get a quick loan.
A lot of gig workers maintain their sideline together with their day job, and it usually involves a personal small business of some sort. Unfortunately, these kinds of businesses are still not eligible for a business loan, especially from banks and their high rejection rates. They usually prefer businesses with established credit history and good financial records. If you need additional funds to sustain your gig, you can always apply for a personal loan.
Personal loans are a lot easier to apply for compared to business loans. Of course, this refers to conventional sources like those listed above. In applying for a personal loan, they don’t look at the condition of your business whether it’s doing well or if it has sufficient credit history, they will be checking yours–your income and personal credit history among them. Additionally, there are a lot of online lending platforms like Giggle Finance that are more flexible when it comes to your credit history, provided you have the means to pay your loan.
The only drawback from this option compared to a formal business loan is the range of values available, which usually caps out at $50,000 compared to six-digit business loans.
Credit Union Loans
Credit unions are generally easier options compared to traditional banks. They are usually localized organizations where members pool their resources together to help their fellow members. They have lower operational expenses, which lend to their loans having lower interest rates and better payment terms. On the other hand, they are less accessible compared to banks since they generally have fewer branches and not all of them have websites or mobile apps.
Still, for a gig worker, credit unions are better loan sources. They approve fast, have a wide range of loanable amounts, and have good payment terms and interest rates. Also, while the main requirement for credit union loans is to be a member of the union, some unions now allow you to apply for membership and get approved for a loan on the same day.
Lines of Credit
If your business requires you to regularly replenish an inventory or put out an investment before getting paid, and you don’t usually have the resources on hand, a line of credit can be your quick loan solution. It is a flexible form of loan that acts as your additional fund. It’s basically a credit card for you for a personal line, or for your business for business lines of credit.
Depending on the lender and the type of credit line you’ll be applying for, you will be given access to a fixed amount of funds. You can take out any amount of from this fund, with the entirety of the fund being your limit. Its advantage is that you only have to pay the interest for the amount of money that you borrowed. When you pay off your loan, it is returned to your fund and you can borrow it again.
Compared to a personal credit card, lines of credit has larger available funds and better interest rates and repayment terms. Furthermore, the rotating funds available in your lines of credit can be extended indefinitely, provided you continue meeting your responsibilities.
If you need a small nudge to keep your gig moving forward, like vehicle maintenance for Dashdoor drivers or art materials for graphic designers, microloans might be the best option you have. From the name itself, the range of loanable amounts is quite smaller, rarely exceeding $35,000. However, they offer short payment terms and lower interest rates. They are usually targeted toward marginalized groups like women, veterans, minorities, and more who experience difficulty applying for loans from traditional sources.
A longer payment term is usually associated with increased rates and risks of failure to comply. Microloans offer gig workers a better option to take out a loan that they only need, which keeps their debts manageable. Aside from easier approval and payment terms, microloans are also good opportunities to build your credit history since most of them are accredited and connected with the major credit bureaus.
As the economy is now gravitating toward the gig economy, gig workers are becoming increasingly relevant across different industries. From consultants to creatives to riders, they are permeating all aspects of society and as such, there are increasing options toward financial support for them. If you’re a gig worker, knowing what options are available for you can help you keep your gig ongoing and even afford you opportunities for growth.