As a freelancer, you have a lot on your shoulders. After all, you have to be every role in your company as well keep an eye on your finances. One component of that is figuring out the best business loans for freelancers if you find that you need a little (or even a lot of) extra capital to get your work done. Luckily, there are lots of options for business loans for freelancers, no matter your financial standing or the kind of freelance work that you do.
In this guide, we’ll go through the best options for business loans for freelancers and help you figure out which is the best choice for your needs. There are loans that help you get more capital and others that are tailored toward newer freelance businesses with less revenue. We’ll also cover what documentation you’ll need to apply for this financing, so you can get a head start on your application.
The 8 Best Business Loans for Freelancers
These are some of the strongest business loans for freelancers to consider.
You might have heard of SBA loans, which are some of the most desired (and, frankly, competitive) loans available. That’s because they have some of the best terms available, including long repayment periods, high capital amounts, and low interest rates. They’re guaranteed by the U.S. Small Business Administration, which helps lenders extend such favorable terms.
Unless you’re generating quite a bit of revenue and have been running your business for a substantial amount of time, an SBA loan likely won’t be in reach. (Though if you do meet those requirements and have great credit, you should look into SBA 7(a) loans—the most popular of the programs.) However, that’s where an SBA microloan comes into play.
SBA microloans provide entrepreneurs with more nascent businesses up to $50,000 in capital. Women, minority, and veteran entrepreneurs are also prioritized in these applications, which can be a boost if these identities apply to you. Qualifications are less stringent than standard SBA loans, the biggest of which are revenue and time in business.
Like other SBA loans, SBA microloans do not fund quickly, so don’t apply for this loan if you need capital fast. Otherwise, if you have the time, it’s worth considering this loan, since it still comes with the preferred terms as well as great resources as other SBA loans.
Business Line of Credit
A business line of credit is one of the most popular and best options for freelance business loans.
These loans aren’t too different from business credit cards (more on that below) with which you spend against a credit limit, but they come with higher capital amounts and more preferable interest rates than credit cards. You’ll work with a lender to get approved for a certain credit limit, and then you use whatever portion of that limit that you need, when you need it. You also only pay interest on the amount you use.
Business lines of credit have some of the most flexible approval terms among business loans. There’s a range of requirements for candidates’ revenue, time in business, and credit score.
These loans are also great for many uses as they can be spent flexibly. Approval is often quick—sometimes in as little as a single day.
As with other business loans, the strength of your credentials will determine how preferable your interest rate and repayment terms are.
Business Credit Card
A business credit card is, as you’d expect, a credit card specifically meant for business expenses. And although many wouldn’t necessarily think of a credit card as a type of business loan, it is a powerful financing tool that can open up a lot of doors for freelancers looking for capital.
Like a personal credit card, you apply to a financial institution and get approval for a certain credit limit. You pay off the card monthly, or, if you carry a balance, you’ll pay interest (calculated as an APR) until you repay the balance. You’ll only use a business credit card for company-related transactions.
If you choose a business rewards credit card, you’ll be earning points or cash back as you spend—an advantage over other types of business loans. You can invest these rewards back into your business. You also have the option to apply for a 0% introductory APR business credit card, which provides you with a fixed period to spend on the card without interest. These periods are often up to a year, which gives you some extra spending power without interest fees.
Approval for business credit cards is generally very fast—even faster than most loans. And there’s a range of cards for a range of credit scores, so there’s a good possibility there’s a card out there for you. (Expectedly, the better your credit, the better your range of options and, often, the lower your interest rate.)
One major benefit of business credit cards that you might not have considered: When you pay off your bill in full and on time, you’re actually building your business credit score since you’re proving your financial responsibility to lenders and building history. This can make you a stronger candidate for business loans if you decide to apply down the line. So, even if a business credit card isn’t the right financing tool for your needs as a freelancer, it might be worth applying for one anyway for that reason alone.
You’ll need to pay back the balance in full before the introductory period ends and a variable APR sets in. These APRs can be quite high, so plan accordingly.
As a freelancer, you’ve probably experienced having a lot of outstanding invoices, whether they’re not yet due or are overdue. And, if you need that revenue sooner rather than later, invoice financing is a popular way to get the money faster.
With invoice financing, you provide a lender your outstanding invoice, and they’ll front you a significant portion of the money (often about 85%) that you can begin using right away. There’s a small fee for every day the invoice is outstanding from your client, and, once they pay up, you repay the cash, and they’ll return the balance to you, minus these fees.
Another big benefit: These loans are fast to approve, and have lower barriers to approval than other business loans since the invoice serves as collateral on the loan.
Keep in mind, you won’t get the full amount of your invoice back since you’re paying fees, but many freelancers find the premium worth the cost in order to access their capital faster and improve cash flow.
Personal Loan for Business
If you don’t have business assets to put up for collateral, another option to consider is a personal loan for business.
Capital amounts are lower than business loans for this reason, but personal loans for business can still help out freelancers immensely.
These loans are secured against your personal assets instead of business assets, which means they can be slightly riskier than business loans.
Crowdfunding is a very popular financing model these days and allows an entrepreneur to collect money in small amounts from individuals who want to help fund their project or business.
Alongside obtaining funding, crowdfunding gives freelancers the chance to gain feedback from potential customers before they launch. And if a crowdfunding campaign is done right, it can lead to good exposure for the freelancer, helping them not only fund their business, but build it.
This is not a guaranteed source of financing and many crowdfunding campaigns fail. It can also feel awkward to ask real people for money instead of a bank. The typical success rate for crowdfunding campaigns is 22.4%. You’ll also have to pay platform fees to host your campaign and can open yourself up to fraud by making your freelance business plans so public.
Business grants can offer funding to small businesses (in many cases a freelancer is running a small business) and the recipient does not have to pay the money back. Obviously this sounds ideal, but there are both pros and cons associated with business grants worth considering.
Of course, accepting free money is a great option for finding a business. Not to mention, some grants also offer other forms of support like mentorship and publicity. There are a lot of options for grants on a state, federal, and local level. Some private companies offer grants as well.
Because of the major benefits of business grants, they can be quite competitive to obtain and you may spend a lot of time applying for funds you will never receive. Applying for a grant that is specifically designed to help freelancers like yourself (such as grants for women or minorities) can help lessen the competition.
When you take out a short-term business loan, you’ll be given a lump sum of money that you will have to pay back over a set period of time, with interest.
Short-term loans can typically be obtained very quickly and usually come from online lenders. If you need cash fast, a short-term loan can provide a solution.
Unfortunately, this loan type usually has a much higher APR and shorter repayment period (usually three to 18 months), so this is not the most affordable option for business funding.
How to Apply for Business Loans for Freelancers
Every lender and type of business loan will have its own specific application requirements. That said, there are many documents that are common among these that you can prepare in advance of your application. That’s especially helpful if you’re looking for money quickly.
You’ll want to pull:
- About three months of business bank statements (some lenders may connect to your business bank account directly, in which case you don’t need to provide these)
- Financial documents including balance sheet and profit and loss statement
- Two years of business tax returns
- Two years of personal tax returns
- Personal ID
It’s also worth noting that SBA loans will require a larger number of documents, which is part of why these loans take much longer to process.
Among the options for business loans for freelancers that you have, you’ll want to know exactly what you’re looking for from business financing. Before you apply, you’ll want to ask yourself:
- How much capital you need
- What you need to use it for
- How quickly you need the funding
- How consistent your revenue is to be able to pay back your loan in full and on time
- How strong your credentials are, including revenue, credit score, and time in business
As you evaluate your loan options, keep in mind the above points to figure out which loan is best for you.
The Bottom Line
Although your journey to the best business loans for freelancers might not be as straightforward as it is for big businesses, you should feel good that you have lots of options to explore.
Remember that, as you go, it’s important to know what exactly you’ll be using the money for, and how much you’ll need. Never take a loan for more than you can afford, even if you’re approved for more than you ask for—this can create major financial problems and put your assets in jeopardy. That can be especially scary for freelancers if you work solo.
Otherwise, the right business loan for you is out there. If you’re still unsure, remember that you can always reach out to a professional for guidance. In fact, that’s why Fundera exists—to help make the business loan shopping process easier. Fill out our application to see what options you qualify for, and get matched with a loan specialist to better understand all your options and choose the best one for you and your business.