Unsecured Business Loans for Gig Economy Entrepreneurs: A New Frontier

More people have taken a giant step forward and now work for themselves in what has become the largest gig economy to date. According to McKinsey, 36% of respondents to its American Opportunity Survey (AOS) identified as independent workers, a 9% increase since 2016, when 27% represented the independent workforce. Meanwhile, Cognitive Market Research projects that revenue in the gig economy market will grow 15.4% through 2031.

The gig economy comes with both benefits and challenges. Among the greatest challenges is securing a loan for gig workers. But whether you’re a freelancer, independent contractor, startup entrepreneur, or have a side hustle, a small business loan can help you take your business to the next level or get you through a slow season until things turn around.

Read on to learn more about how a gig workers loan can benefit your business.

What are Gig Workers?

Gig workers are independent workers who take on temporary gigs or jobs for clients without dedicated business premises or formal business structures.

It’s interesting to note that a third of people surveyed in a McKinsey report who earn over $150,000 annually also work a side hustle in the gig economy.

With 76.4 million freelancers in the U.S., these independent workers include:

• Ride-share workers for Lyft or Uber
• Accountants
• Lawyers
• Traveling nurses
• Influencers
• Upwork freelancers and other independent contractors (this includes a long list of professionals, including writers, editors, graphic designers, virtual assistants, bookkeepers, and more)
• Airbnb hosts
• Amazon, Instacart, and DoorDash delivery drivers
• Etsy or eBay shop owners
• Personal service jobs such as housecleaning, pet sitting, or a car detailing business

Benefits of a Business Loan for Gig Workers

Between fluctuating revenues and slow seasons, gig workers face unique challenges. Many independent contractors find themselves in a position where they need to borrow money for business needs. A loan for gig workers can offer many benefits, including:

• Optimized cash flow management to help cover operational expenses
• Opportunities for business expansion as you enter new markets or offer new services
• More financial stability by providing a regular, steady source of capital
• Ways to grow your business by investing in marketing, training, or new products
• A way to deal with unexpected expenses or emergencies

Unique Challenges in Securing a Gig Workers Loan

Many small business owners find that getting approved for financing is not easy and it can be even more challenging if you’re a gig worker wanting to borrow money for business needs.

Here are some reasons why:

Unpredictable Cash Flow

It can be hard for an independent worker to predict how much revenue comes in from month to month. Unless you have solid contracts in place, a client might decide to pause work for a month or move on altogether without your services. You may not sell as many products or services as you normally do.

This can disrupt your cash flow and make it difficult to pay down your business debt, buy inventory, or meet other operational expenses. Even worse, if working as an independent contractor is your primary source of income, it can make it harder to meet your personal expenses, such as your mortgage or car note.

The solution: Be proactive when it comes to cash flow management.

• Do a cash flow analysis outlining a plan to meet forecasted expenses.
• Track your expenses to see if you have any costs that are unnecessary or can be put off.
• If you sell products, re-negotiate with vendors for more favorable terms.
• Build an emergency fund to enhance your cash flow. One way of doing this is to set aside any surplus income during good months to help cover leaner months.
• Consider a loan for gig workers to bolster your cash flow and cover day-to-day expenses.

Lack of Traditional Employment

Banks and credit unions tend to have stricter standards when it comes to small business finance solutions, so if you’re looking for a loan for gig workers and have a lack of traditional work history and unstable income pattern, it may be hard to get one.

Many gig workers also manage their own taxes and financial records. But if you aren’t keeping accurate records, it may make getting a loan for gig workers more challenging, as having financial documents in order is a dealbreaker for many lenders.

The solution: Optimize the financial management of your business.

• Track and document all business expenses and income.
• Have a separate business bank account to ensure your business income and expenses are kept separate from your personal finances.
• File annual taxes and take care of any liability to remain compliant.
• Set business goals and formulate a business plan.
• Invest in software to prepare required financial statements when applying for a business loan, such as a profit and loss statement, balance sheets, income statements, etc. Or, partner with a financial expert to ensure optimal financial management of your business.

Building Personal and Business Credit

Gig workers often have a harder time building business credit history. This is especially the case when they derive 75% or more of their income from the gig economy.

The solution: Work on improving your creditworthiness.

• Get a copy of your credit report. Check it regularly to ensure its accuracy and dispute any incorrect information.
• Pay your personal loans and business debt on time. Late payments can damage your credit rating while paying on time with vendors who report to the credit bureaus can raise your credit score.
• Focus on reducing your existing debt and maintaining a lower debt-to-income ratio to appeal to lenders. Consider consolidating and refinancing debt if it will help you manage your finances better.
• Diversify your income. Consider getting a part-time job to show a regular source of income and to add to your revenue stream.
• Work with an alternative loan specialist specializing in quick unsecured loans for gig workers. If you have bad credit or lack of credit, you may need to start with smaller loans but paying those off timely can help you get better loans in the future. Many gig workers aspire to become full-fledged entrepreneurs and view the gig economy as a stepping stone towards making it happen. Building your credit while working towards bigger goals can help you get there.

Financing Options for Gig Workers

Gig worker financing can infuse capital into your business to help meet expenses, fund equipment purchases, expand your business, or help pay for unplanned expenses.

Here are a few of the financing options available for gig workers and independent contractors.

Credit Cards

A personal or business credit card offers you a predetermined credit limit to spend how you choose. The interest rate charged on your transactions often depends on the card issuer and your credit score.

Pros:

• A great tool to build credit
• Flexible financing option
• Great for unpredictable income and cash flow

Cons:

• Interest rates can be high, especially if you have poor credit
• Credit limits may be lower than what you need

Cash Advances

• A cash advance is a type of small, short-term loan, usually with a high interest rate and fees.

Pros:

• Fast approval and quick funding
• Excellent credit is not necessary
• Less documentation may be required than some other types of financing

Cons:

• The repayment period may be shorter
• Interest rates are sometimes higher than traditional loans

Business Line of Credit

A line of credit works similarly to a credit card in that you’re given a specific credit limit to draw from as you need. It can be a helpful option if you need to cover emergency expenses or optimize your cash flow.

Pros:

• Perfect for irregular income
• You pay interest only on the amount you draw from and your credit limit resets as pay down the credit utilized
• The flexibility to use the credit line as you wish
• Great for bolstering your creditworthiness

Cons:

• Often requires stronger credit
• Interest rates can be variable

Short Term Loans

A short-term loan can offer you a specific loan amount that is repaid with interest over a set period. Short-term loans might be an option for gig workers wanting to expand their business or when you need to cover a larger investment into your business.

Pros:

• Often more favorable terms than other types of financing
• Predictable repayment terms and monthly payments
• Offered by many types of lenders

Cons:

• Gig workers have a harder time qualifying without showing a steady income stream
• Typically require good to excellent credit
• Usually, a lengthier loan application and approval process

Final Thoughts

A loan for gig workers can help you better manage your finances, grow your business, and boost your cash flow. It can also help you navigate the challenges that are common in the gig economy.

Working with an alternative loan specialist can help you reach your goals and get the funding you need to succeed.

FAQs

How easy is it to get a loan for gig workers?

It depends on several factors, including your credit, how long you’ve been an independent contractor, how much revenue you can show, and the type of financing you apply for. It’s best to determine your goals, formulate a business plan, gather your financials, and research loan specialists to determine the option that best meets your needs.

How can I provide proof of income as a gig worker to apply for financing?

Depending on the financing solution, you can use bank statements, tax returns, invoices, accounts receivable, and pay stubs if you have a part-time or full-time traditional job. You may also need to provide financial statements such as a profit and loss statement if the lender requires them.

Is there a loan for gig workers with bad credit?

Yes, there are, although, the amount you can borrow will probably be lower than if you had good credit. You’ll also likely have to pay more interest on the loan.

Is it possible for gig workers to get unsecured installment loans with no credit checks?

Possible, yes, but not likely unless you can put up substantial collateral for the loan. If a lender approves financing in such a case, they’re likely to charge very high interest to manage the risk.

Frequent searches leading to this page