Secured loans for self-employed
How to access the funds you need with the unique challenges of working for yourself.
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What is a secured loan?
A secured loan is where you offer an asset - usually your home or other property - as collateral. If you can't repay the loan, the lender can take that asset to recover their money.
The good news is, because the loan is "secured," you might find it easier to get approved, especially if you don't have a regular salary coming in. In fact, secured loans are often available to self-employed people who might struggle to qualify for other finance.
How self-employed secured loans work
Say you're a business owner or sole trader - lenders will look at your ability to repay the loan in a slightly different way. They'll likely review your business income, profits, and overall financial health rather than just a monthly payslip.
Proof of earnings: As a self-employed person, you'll need to show the lender how much money you make and whether your business is stable enough to support a business loan. This might involve showing your tax returns and bank statements for the last couple of years. They want to know you're earning enough to make the repayments without putting a strain on your income.
Securing the loan: To reduce the risk to the lender, you'll need to offer collateral in exchange for the loan. This could be your home, car, or another valuable asset. Let's say you're a self-employed graphic designer who needs a loan to expand your business - you might decide to use your home as collateral, which the lender can take if you fail to repay.
Lower interest rates: Because a secured loan comes with collateral, lenders often offer lower interest rates compared to unsecured or personal loans. This could save you money in the long run, especially if you need to borrow a larger sum of money for business purposes.
Benefits of secured loans for the self-employed
Secured loans come with a range of benefits for self-employed people. Here are a few reasons you might want to consider one:
Access to larger amounts: One of the biggest advantages is that you can borrow more money than with an unsecured loan. This could be helpful if you're looking to fund a large business project or cover a major expense. If you're a contractor and you need to buy expensive equipment to expand your service, a secured self-employed loan could give you the financial backing you need.
Easier approval process: Self-employed people sometimes struggle to get approved for unsecured borrowing because lenders may find it difficult to verify your income. With a secured loan, lenders are more likely to approve you because they have the security of your asset to fall back on. This makes it easier to borrow money without worrying so much about the approval process.
Flexible repayment: Secured loans often come with more flexible repayment terms, including longer repayment periods. For example, you might be able to pay the loan off over several years, which can help spread the cost and make monthly payments more manageable. If your business is growing and your cash flow is inconsistent, a flexible repayment plan can make life much easier.
Before you take out a secured loan
While secured loans can be a great option, here's what you need to keep in mind before you sign on the dotted line.
Risk of losing collateral: The biggest risk with a secured loan is the possibility of losing the asset you used as collateral. If you used your house as collateral and you can't keep up with the loan payments, the lender could potentially repossess your property. So, it's essential for self-employed borrowers to be able to make the repayments before signing on the dotted line.
Value in your collateral: Before applying for a secured loan, make sure you understand the value of the asset you're offering as collateral. Lenders will typically lend a percentage of the value of the asset, known as the loan-to-value (LTV) ratio. You'll want to make sure it's enough to meet your needs, and you should always have some wiggle room in case things don't go as planned.
Your credit history: While secured loans may be easier to get than unsecured loans, your credit history will still be important. Lenders will likely check your credit score and your history of borrowing and repaying loans. If you have a bad credit score, it may be harder to secure a loan with good terms. But taking the loan and managing it well can actually improve your business credit rating.
Summing up
Secured loans can be an excellent way for self-employed people to access the funding they need. You can borrow larger sums, often at lower interest rates, and have more flexibility with repayment terms. It's important to weigh the risks involved, such as the possibility of losing your collateral if you don't repay the loan. Do your research, understand your finances, and make sure you're comfortable with the terms before moving forward.
Frequently Asked Questions: Secured Loans
Can I get a secured loan if I've been self-employed for a short time?
While being self-employed for longer is a benefit, some lenders may still consider newer businesses if you can provide sufficient proof of income, such as recent contracts or a strong business plan. The terms may not be as favourable if you haven't yet established a solid track record.
Can I use assets like equipment or inventory as security?
Yes, some lenders may allow you to use business assets such as equipment, inventory, or even receivables as collateral for a secured loan. This can be an alternative if you don't want to put your personal assets, like your home, at risk. Still, business assets might come with different loan-to-value ratios or terms compared to personal assets.
How can I improve my chances of getting a secured loan when self-employed?
To improve your chances of approval, make sure your financial documents are detailed and accurate. This includes showing a stable income, good credit history, and a clear picture of your business's finances. Up-to-date tax returns, bank statements, and profit and loss statements can help lenders feel more confident in your ability to repay the loan, as well as valuable collateral.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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