A guide to loans for the self-employed in Canada
Whether you need $10,000 or $500,000 – Alpine Credits is the best alternative for home equity loans in Canada
When you’re self-employed in Canada, getting a loan operates a little differently than if a company employed you. In Canada, self-employment means that you’re not getting a regular paycheque; as a self-employed person, you might be a contract worker, a freelancer, or you might own your own business.
Even though getting a loan has a different process and requirements for you, with the right lender, you’ll be able to receive a loan that is best suited to your needs. If you are in need of a loan, you can prepare yourself by understanding the loans that are available and what requirements are needed from you.
What are the types of loans for self-employed people?
Contract workers and business owners have the same opportunity to access the loans that regular employees do. Depending on each person’s financial situation, a specific kind of loan will be a better fit than another, and some lenders assess the risk of lending to someone self-employed differently than how they assess the risk of lending to someone who is employed full-time. Self-made entrepreneurs who have home ownership can access a home equity loan with Alpine Credits.
Home equity loans
One option for self-employed individuals is accessing their home equity in the form of a loan. Home equity is the difference between the outstanding mortgage balance and the value of the property. The property itself doesn’t have to be a standalone or detached house; it can also be a condominium or townhouse. As long as you have paid down a good portion of your mortgage or, the equity value in your home has grown, you could be eligible for a home equity loan.
Home equity loans are available at major financial institutions and at alternative lenders like Alpine Credits. Qualifying for them can be different than qualifying for other kinds of loans and credit lines. In some cases, lenders won’t have to check your credit scores or look at your credit report and may consider self-employed income differently than how employment income is considered. In these cases, all you’ll need to do is own your home.
If you’re a self-employed homeowner, you’ll still have to provide proof of age and citizenship, but your financial history plays a less significant factor in the approval process. A home equity loan also allows borrowers to have more flexibility. The money you receive can be used towards your business and all its expenses as you choose to address them.
Home equity loans for your business
If you are a business owner and a homeowner, you can obtain a home equity loan that is used for your business. You can use a home equity loan for business purposes such as launching an additional business idea, purchasing inventory, supplies for yourself and your work, or other campaigns for your business. If you have an early-stage business or the cash flows of the business are not sufficient to obtain a business loan, a home equity loan may be a good solution for you to consider.
Requirements to get a loan from the bank
Getting a loan from major financial institutions takes some effort, especially for those who are self-employed. Generally, getting a loan when you’re self-employed means having to provide additional documents that regular employees wouldn’t have to give. That being said, both self-employed and hired workers still have a basic list of requirements they must satisfy. In general, to be eligible for a loan in Canada, you need to
- Be at least 18 years of age—the minimum age to apply for credit cards and other loans is 18 years. Some provinces or territories have different age minimums, so verify with your bank to see if it’s different.
- Have proof of income and meet requirements—you’ll need to show that you have been receiving income for the past two years; a steady flow of income looks better on loan applications. On top of that, many traditional lenders will have a minimum income requirement. These lenders want to know that you can make the payments required to meet the obligations of the loan.
- Meet credit score requirements—the minimum credit score ranges depending on how much you’re borrowing and what you’re borrowing for. For example, unsecured loans will have a different standard compared to secured loans. Unsecured loans will likely require a higher credit score than secured loans, but secured loans will require an asset to act as collateral in addition to its own expectations of the minimum credit score.
How to increase your chances of loan approval at the bank
There’s no harm in going ahead and applying for a loan, but there are some notes you can keep in mind before and during the application process.
- Choose a secured loan—lenders want to feel as secure as possible when creating an agreement for a loan. The way you can do that is by offering collateral, like your car or your property.
- Diminish your debt-to-income ratio—this is something that you can accomplish before you apply. To do so, pay down or pay off any outstanding loans. This will improve your credit score because when. you repay an auto loan, your student loans, or your other credit accounts, the credit bureau will see your creditworthiness increase and you will also see your debt-to-income ratio improve.
- Add a co-signer—the purpose of a co-signer is to vouch for your integrity when it comes to loans. It is crucial that the person you choose as a co-signer has a good credit score. Upon successfully getting approved for a loan with the help of a co-signer, you can benefit from potentially lower interest rates. Over time, as your creditworthiness improves, you may be able to renew the loan and remove the co-signer from the application.
Getting approved with alternative lenders
One main difference that alternative lenders and banks have is the way they approve applicants for a loan. Traditional banks have more strict criteria compared to alternative lenders. Applicants must have a certain credit score, certain income, and/or a certain debt service ratio to receive a loan from the bank. Having a bad credit score or not providing proof of income, getting a loan can be a challenge.
On the other hand, many alternative lenders do not have the strict requirements that the banks have. For example, Alpine Credits only considers the value of an applicant’s home equity in order to be approved for a loan.
As long as you have paid at least 25% of your mortgage balance, you could be eligible for a home equity loan from Alpine Credits. They do not require a certain credit score, nor do they ask for you to have a certain income. The only factor that matters is the equity in your home.
Advantages of getting loans from Alpine Credits when you’re self-employed in Canada
Getting a loan from Alpine Credits when you’re self-employed brings many benefits. The amount of a home equity loan can get very high because the loan is based on a percentage of the value of your property. As such, you can get the amount of money that you need to do the following.
- Access your working capital quickly—your business might need you occasionally make sudden expenses. With a loan, you’ll be able to cover those needs and upon your success you’ll be able to generate more in return.
- Build your credit score—when your business succeeds and you’re able to build a good payment history, your credit score will increase.
- Invest in your business—anything that you spend towards your work or your business is considered an investment. By doing so, you get to see your business thrive from what you initially spent.
Getting approved with alternative lenders
One main difference that alternative lenders and banks have is the way they approve applicants for a loan. Traditional banks have more strict criteria compared to alternative lenders. Applicants must have a certain credit score, certain income, and/or a certain debt service ratio to receive a loan from the bank. Having a bad credit score or not providing proof of income, getting a loan can be a challenge.
On the other hand, many alternative lenders do not have the strict requirements that the banks have. For example, Alpine Credits only considers the value of an applicant’s home equity in order to be approved for a loan.
As long as you have paid at least 25% of your mortgage balance, you could be eligible for a home equity loan from Alpine Credits. They do not require a certain credit score, nor do they ask for you to have a certain income. The only factor that matters is the equity in your home.
What to remember about loans for self-employed individuals
While a loan is an opportunity to invest in your business, it’s important to remember that, like any other loan, loans for self-employed people require much deliberation. Be sure to compare interest rates as different institutions will have different reactions to your business income and what pricing they offer for loans for self-employed individuals.
Frequently asked questions
Conclusion: Loans when you’re self-employed
People in Canada require loans for a number of different reasons. It could be to consolidate their debt, give a down payment for a house, or to develop their business endeavours. Self-employed Canadians are no exception to those situations and do have many options like personal loans, business loans, lines of credit and home equity loans.
A great loan of choice for self-employed individuals is a home equity loan. It can be quick to obtain funds, provide flexibility for the borrower and their business and can be available from traditional lenders or alternative lenders. Whatever loan one chooses, they should be taken into careful consideration including doing lots of research and seeking advice if taking out a loan is a big decision (with big responsibilities).