Secured loans for the self-employed: income evidence and accounts

Self-employed applicants may need alternative income evidence if formal accounts are unavailable. This guide explains what to check before applying for secured borrowing.

In this easy-to-understand guide, we’ll explain:

• What a secured loan is and how it works.
• The true cost of a bad secured loan.
• How you, as a self-employed person, can apply for a secured loan.
• What documents you need when applying.
• How to use your secured self-employed loan to sort out other debts.

Some lenders accept specified alternative evidence, but a lack of accounts does not mean a regulated mortgage can be obtained without proving income and affordability.

Check acceptable documents and trading-history requirements before applying.

How do I apply for a Secured Self-Employed Loan? 

The initial procedure you need to follow when you’re applying for a secured self-employed loan is pretty much the same as it would be for any other loan.

Here’s what you need to before applying for a secured self-employed loan: 

• Gather all documents pertaining to your finances. As a self-employed individual, it’s essential for you to have documents related to your financial affairs at hand as these will be needed by the lender to assess your eligibility for the loan. 
• Check your eligibility for different secured loans. There are many lenders now which offer you the ability to assess your eligibility for their loans before you even apply to them. It’s a good idea to assess yourself in this way before applying for a loan to a certain lender as it can save you time and effort. 
• Compare different secured loans. It’s always a good idea to compare all the options you have to ensure you’re getting the best possible loan that suits your needs and budget. 

Do Lenders even Offer Loans to Self-Employed People?

Meeting published criteria does not guarantee approval. The lender assesses the income evidence, commitments, property and full application.

A secured loan is not automatically easier to obtain than unsecured borrowing for a self-employed person.

Security exposes the asset to enforcement; it does not replace affordability checks.

Are Loans for Self-Employed Individuals More Costly? 

Rates and fees depend on the product and risk assessment. Self-employment does not automatically mean a higher price, but good credit and documents do not guarantee the same cost as another loan.

What Documents Do I Need to have on Hand when Applying for a Self-Employed Loan? 

Different lenders can have different requirements for documents they need to assess your eligibility.

However, some of the documents should absolutely always have on hand when applying to lenders authorised and regulated by the Financial Conduct Authority, are the following: 

• Proof of Identification: This can be any document that proves you are who you say you are. A driver’s licence or a passport can suffice for this. 
• Proof of address/residence: This is to prove you live where you say you live. Typically, a copy of your recent council tax bill or a copy of a recent utility bill is enough to act as a proof of address. 
• Income evidence may include an SA302 tax calculation, tax-year overview, accounts or other documents accepted by the lender. The number of years required varies; there is no universal two-year rule. HMRC explains how to obtain available SA302 calculations. See related guidance.
• Bank statements: These will most likely be requested by your lender as proof of income so that they can cross-check your earnings with your SA302 calculation. It is also needed by the vendor to get a sense of your financial situation as well as your monthly expenditures. 
• Proof of rental income (if any): This needs to be declared when applying for a loan and you also need to provide evidence for it. This could be in the form of copies of bank statements, mortgage or lease/tenancy agreements.
• Company/business details: This could be any documents that detail the status of your business (sole trader, partnership, limited company, etc.) If there are other individuals that have a financial interest or stake in your business, you need to declare this as well. 

Is it Possible to Get Approved for a Secured Self-Employed Loan with Bad Credit?

While it’s not difficult to find loans for self-employed individuals with bad credit, you may find you’ll have a harder time getting approved for them.

You may also find that these loans may be for a lower amount than what you need or they may be at a much higher interest rate than loans that are offered to individuals with a good credit score. 

That being said, when you’re looking for a lender, you should always ensure that they are regulated by the Financial Conduct Authority. You don’t want to get caught up with a loan shark who is operating illegally. 

They could charge you very high-interest rates and may even threaten you with physical violence if you can’t pay it back. 

Can I Use My Secured Self-Employed Loan for Debt Consolidation? 

Compare the total amount repayable, interest, all fees, the term and early-repayment charges. A lower monthly payment can mean a longer term and a higher total cost. Securing previously unsecured debt against your home puts the property at risk if you cannot keep up repayments.

Seek free debt advice before using home-secured borrowing to consolidate unsecured debts, especially if existing payments are unaffordable.