The advent of remote work and the gig economy has introduced people to the perks of self-employment. Unlike a typical 9-to-5, freelancing opens opportunities to diversify projects, self-manage work hours, and start the day in PJs from anywhere in the world.
Despite these upsides, however, freelancers also face disadvantages, particularly when applying for loans. Because of the unstable nature of a freelancer’s income, banks and lending institutions still tend to view freelancers as credit risks. To approve a loan application, most lenders require various documents that are much easier to acquire for employees of companies with in-house accounting and human resources teams.
Fortunately, there are also non-traditional lending services with minimal requirements, which makes getting that online loan Philippines-based freelancers have previously been hesitant to apply for so much easier.
If you’re a freelancer planning to secure extra cash for major purchases and immediate needs, here are some tips to boost your chances of getting approved for a personal loan—and with it a high borrowing limit:
Register as a Taxpayer
Regularly filing your income tax return (ITR) with the Bureau of Internal Revenue (BIR) is a sure way to validate your financial capacity. If you haven’t done so yet, register as a business or a self-employed professional with the BIR. Your ITR shows your annual income in addition to proving that you are a registered taxpayer, which is a great way to show banks and other lenders that you’re financially capable of paying your loans.
The process of registering and filing may take a while, but it is highly beneficial not just for loan processing. Your ITR can also come in handy when you’re applying for a visa or credit card.
Register Your Freelance Practice or Other Businesses
In addition to registering as a taxpayer, you can also opt to legitimize your practice by registering with the Department of Trade and Industry (DTI) and having an occupational tax receipt (OTR). If you have another business venture aside from your freelance practice, you can register this with the DTI and secure business permits to show that you have another stable source of income.
Have a Good Credit History
Lenders assess your creditworthiness before approving you for a loan, and this means going through your payments for credit cards, insurance premiums, and other loans. Thus, before applying for a loan, it’s best to ensure that you practice good money management habits first.
Lenders also look at your debt-to-income ratio when evaluating your application. This ratio calculates all your remaining debts and determines how much of your monthly income goes to this total. Make sure to have a low debt-to-income ratio to establish your legitimacy as a borrower and increase your credit score. Remember, the lower the ratio, the higher your credit score and the amount you can borrow.
Organize Important Financial Documents
Different lenders have different application requirements, with some allowing alternative documents for freelancers. Lenders usually require documents such as a bank statement for the past 6-12 months, latest utility bills under your name and present address, proof of ownership for assets like cars and houses, and even stock certificates if you invest in stocks.
For good measure, you should also have your latest ITR and certificates of employment from your clients that detail the nature of your job, length of contract services, and gross income. Some freelancer platforms allow you to download a certificate of earnings report that shows your earnings for up to one year.
Check With Your Own Bank…
If you have a long-term savings account with a traditional bank, you can try applying for a loan with them. Because they already have your financial and personal details on record, vetting you for a loan would be relatively easy. This is especially true if your clients regularly deposit payments directly into your bank account.
You should also consider opening a current account, which is mainly used for business purposes and frequent transactions such as rent payments. Current accounts, which have a higher maintaining balance, help prove that you are a professional with a stable source of income. If you don’t want to open a current account, you can open a separate savings account for your earnings to make your income easier to assess.
…Or Get a Loan From Trusted Online Lenders
The great thing about the rise of nontraditional private lenders is that more people can now access lending services. Loans from banks and other traditional lending institutions usually have stringent requirements, making it hard for low-earners or less established freelancers to borrow cash in times of need.
Informal yet legitimate lenders tend to have a quicker application and disbursement process, allowing freelancers to secure a loan with readily available requirements such as one valid government-issued ID. Freelancer-friendly lenders also offer more flexible repayment options and low interest rates, as well as a wider range of alternate documents for vetting.
Removing Barriers to Financial Needs
As a freelancer, you may be used to the idea that you need to work harder to establish trust with lenders. But thanks to alternative lending services, you now have the benefit of borrowing cash even without the documents that full-time employees can easily access.
In case you want to strengthen your lender’s trust and get a higher borrowing limit, you can go the extra mile with these additional steps. With more lending options at your fingertips, you can easily enjoy more financial freedom as you work on being your own boss.