A freelancer is a person who is self-employed and is not necessarily committed to a particular employer for long-term. Freelance workers are sometimes represented by a company, some work independently or others use professional associations or websites to get work.
Being a freelancer is quite fancy as you get the freedom to work on your own terms, time slots as well as you are also paid well. But there are many challenges which a freelancer most of the times faces. Amongst all these challenges, the major problem arises when he/she applies for a loan.
As they do not have any financial collateral, so it becomes difficult for them to define their financial stability. Most of the banks and financial institutions treat freelancers as unemployed. So, in case of emergency funds, they have to depend upon others for financial support. Due to strict banking system, nowadays, they strictly rely on credit history before granting money to an individual and in case of freelancers, the strictness is more. The least factor to be considered while approving a loan is the annual tax paid or similar financial instruments to ensure their regular income, which a freelancer often struggles to produce.
But in case a freelancer still wants to avail loan through traditional systems only, then there are certain tips you need to know to create good credit history:
Go for a credit card: When a freelancer uses credit card for daily buying, it means he/she is borrowing money from the bank. Using credit card frequently and following the timeline of repayments, gives a person good credit rating. So while taking a loan, you can show the credit history of your credit cards payments.
Become a co-applicant: While applying for a loan, a freelancer can ask a person with a good credit history to become co-applicant. This increases chances of getting loans easily. Vice-versa, the individual can also apply as a co-applicant with a person who is borrowing money from the bank. This will help in improving the credit history and increase the probability of getting loans in future.
Necessary documents for availing loan
- Brief introduction of business
- Duly signed application form with pass port size photo
- 3 years CA certified Profit and loss statement with balance sheet
- Updated bank account statement of saving income for the last 6 months with last 3 years income tax returns
- Photocopy of registration certificate as a proof of business existence under Establishments Act.
- Photocopy of ration card, residence proof, pan card, ration bill, telephone bill and electricity bill.
- Photocopy of investments such as shares and assets
- Accurate picture of net worth
- Photocopy of Business plan
But with changing global financial landscape, some financial institutions or online lenders have now started providing home loans to freelancers which are a boon to them. Take a look:
Modern ways of loan borrowing for freelancers
- Non-Banking Financial Companies (NBFC) is a new platform through which freelancers can avail loan without a credit history. These institutes have a modern way of lending money. They exempt some conditions and provide personal loans, car loans, and even home loans.
- Apart from them sometimes with the help of P2P lending, loans are also offered against collaterals like gold or even electronic gadgets. Due to leniency, the interest rate of these institutes is little on the higher side when compared to the banks, but if you are in need of money, then must go for it.
So with proper documentation and some important tips, even a freelancer can avail any type of loan in a hassle free mode.