A Comprehensive Guide On Loans And Financing Options For Freelancers
Freelancing can be quite rewarding when done the right way. However, there are a few downsides to it as well. For example, if you are planning to expand your business and want to take a loan, the risks that are involved makes it difficult for banks to trust you easily. Freelancers are considered as sole proprietors who are responsible for all the losses incurred in the business. In fact, if somehow the freelancer becomes physically unfit to work, the bank will be at the receiving end. However, more and more people are opting for freelance work since it gives you the freedom to work whenever and wherever. Hence, here are a few tips on how to get loans or financing if you are a freelancer.
Since business loans are tough to get for freelancers, they need to find other alternatives. Business loans are given only to established organizations who can show some amount of profit in their business. Personal loans, on the other hand, are easier to get since only your personal credit history is going to be checked. Your income sources, credit score, and debt-to-income ratio are the things that will be taken into consideration. They are interested in your business and wouldn’t even care if you have not started it yet. The only downside here would be that you won’t be able to borrow a lot of money like business loans since personal loans can go up to only $50,000. But if that’s enough cash to fund your business, go for it!
Lines Of Credit
Lines of credit are issued by banks. Several online lenders also offer lines of credit. This how it works: you will be given access to a certain amount of money, and whenever you want, you can withdraw a limited amount. You will only have to pay interest on the amount of money you borrow. Sounds familiar? That’s because a credit card works in exactly this way. Thankfully, lines of credit often have much better interest rates and fees when compared to credit cards.
Microloans can work well for some businesses. Though the amount of money you can borrow is even lesser than $35,000 — it’s not a lot of cash, but it’s still something, right? However, since the interest rates are low, it is easier to borrow them at your convenience. Microloans often target a specific demographic. Women, seniors, veterans, or minorities sometimes find it challenging to find other kinds of loans. Hence, microloans are perfect for them. The lenient terms and rates work well for freelancers, too, and they must take advantage of microloans in order to invest in their own business.
The newest kid on the block has to be crowdfunding. Some amazing campaigns by Kickstarter and GoFundMe have made the rest of the world sit up and take note of crowdfunding initiatives. If you have a creative idea, which you can’t implement for lack of funds, crowdfunding should be just the answer to all your questions. So how does it work? When your idea seems worthwhile to potential backers, they fund your project and in lieu get exclusive access to your products and services. Unlike lending or other financing options though, you don’t have to repay the money since you are already repaying by giving them free product or service. However, it requires a lot of planning and time. Since you need to have a flawless campaign to attract donors, you need to have a solid plan.
Late-paying customers? No problem, invoice factoring can help! There are factoring companies who can buy your unpaid invoices and give cash upfront. There are also invoice financing companies where you can get a loan against your invoices. Various lenders will have various rates and terms, but they can be great for freelancers or those who have just started and are bootstrapped for cash.
If you are a freelancer struggling to get a loan, one of these options might be suitable for you, and you can finally start your business. However, the bottom line is that the research work for your business should be impressive enough so that you can attract donors or raise the required funds. When you have a strong foundation, it won’t be difficult to get funding!
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