In the modern market, freelance workers are everywhere. If you’re one of the many that work erratically and take payments in various forms, you might have trouble providing the financial documentation necessary to secure a standard loan. For those workers who find themselves in this situation, stated income loans are often the solution. This alternative financing allows entrepreneurs with irregular income to receive funding, though there are a few things you should know before applying.
- Higher Costs
The terms of a loan vary depending on the applicant’s situation and the intended use of the funds, so it’s rare that someone will know the details of a loan before applying. That said, you can expect a loan based on declared income to have a reasonably high APR. Interest rates are always going to be higher when the lender perceives risk, and someone who cannot provide paystubs is seen as at least a moderately risky candidate.
- Expect Background Checks
While you might not have to provide specific proof of income, the lender will likely investigate any claims you make to verify your worth. Stated income loans aren’t given out unless it’s clear that you have financial prospects and a healthy capital reserve. Don’t claim that you have dozens of clients who are waiting on your services if that isn’t actually the case.
- Tax Records Are Required
This type of loan is not meant to be easy money that’s available for entrepreneurs with shady records. You’ll need to prove that you are paying taxes and not leaving important business information off of your tax returns. This is how the bank or investor will confirm that you’re on the up and up. It also gives the lending company a means of confirming your financial consistency.
- Terms Vary Widely
Stated income loans make up a broad category, and the terms change on a case-by-case basis. Some lenders will require collateral and others will need a number of signatures in order to be approved.
- Applications Are Relatively Simple
While you still need to provide an excellent application, you can count on this process being somewhat less detailed than that of a standard bank loan. As long as you have the right documents, these loans can be handled fairly quickly.
Depending on your situation, stated income loans might be the best way for you to get funding. As long as you know what you’re getting yourself into, you can apply for this type of financing with confidence.