Being your own boss can offer freedom and flexibility. Yet self-employment also comes with many challenges—especially where business funding is concerned. Fortunately, SBA loans can offer a pathway to affordable financing for freelancers, independent contractors, and other small business owners. But there are drawbacks to this type of funding as well. 

This guide covers how SBA loans work for self-employed business owners along with eligibility requirements and application tips. Plus, learn about alternative financing options available for self-employed individuals in case an SBA loan isn’t the right fit for you.

Understanding SBA loans for self-employed individuals

SBA loans are government-backed loans designed to help small businesses access critical funding to start, grow, and expand. Because the federal government helps guarantee SBA loans, they involve less risk and lenders can offer borrowers better terms including:

  • Lower interest rates 
  • Reduced fees
  • Longer repayment terms
  • Lower down payments. 

Both traditional and self-employed small business owners—such as sole proprietors, independent contractors, and freelancers—can apply for SBA loans. 

However, self-employed applicants may find it harder to qualify due to inconsistent revenue, limited collateral, or difficulty satisfying other eligibility requirements on SBA loan applications. (See below.)

Eligibility requirements for self-employed SBA loan applicants

As a self-employed business owner, especially a sole proprietor, banks may be hesitant to lend you money according to the SBA. Keep this detail in mind when you choose your business structure if you think you might want to access financing—now or in the future.

All borrowers, self-employed or otherwise, need to satisfy certain criteria when they apply for an SBA loan which can vary by loan program and lender. Typical minimum SBA loan requirements include:

  • Own a legally registered, for-profit business located in the U.S. (or U.S. territories)
  • Operate a business that doesn’t exceed SBA small business size standards (based on revenue or employee count)
  • Have good credit scores (personal and business) 
  • Provide enough collateral to secure loan
  • Demonstrate you’re unable to access similar financing elsewhere
  • Prove you don’t operate an ineligible business type for SBA loans
  • Provide a personal guarantee from anyone with 20% or more ownership

SBA lenders often add borrowing requirements in addition to those above. For example, your business may need a minimum amount of revenue to qualify for certain SBA loans. Many lenders also require applicants to have at least two years in business for an SBA 7(a) or 504 loan, though some SBA startup loans may be available after as little as six months.

Types of SBA loans available for independent contractors

If you’re considering an SBA loan as a self-employed business owner, here are some financing options to research further. 

SBA Microloan

SBA microloans could be a solid funding resource for self-employed business owners who don’t need access to particularly large loan amounts. Highlights of these loans include: 

  • Loan amount: Up to $50,000
  • Average loan size: Around $13,000
  • Interest rate: 8%-13% (at time of writing)
  • Repayment term: Up to 7 years

Microloans are available through nonprofit intermediary lenders—community-based organizations that help eligible small business borrowers access vital financing for working capital, inventory, supplies, equipment, and other essential business needs.  

SBA 7(a) small loan

Another affordable financing solution to consider as a self-employed business owner is the SBA 7(a) small loan. Key features of the loan include:

  • Loan amount: Up to $500,000
  • Collateral: May not be required for loans of $50,000 or less
  • Interest rate: Negotiable between lender and borrower

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Your creditworthiness and other factors help determine your APR and other loan terms. But lenders can’t charge you more than the SBA maximum. So, the loans should still be affordable compared to other business loans.

SBA Express loan

The SBA Express loan is a type of 7(a) loan that could work well for self-employed business owners who need access to fast funding. Loan highlights include:

  • Loan amount: Up to $500,000
  • Collateral: Typically not required for loans of $50,000 or less
  • Approval time: Potentially within 36 hours

SBA Express loans also feature less paperwork compared to other SBA loan applications. Applicants only need to fill out SBA Form 1919 and complete any other lender-specific paperwork and documentation requirements. If an application qualifies for the loan, the full SBA Express Loan process could take as little as 30 days to complete.

SBA 504 loan

The SBA 504 loan program might also be worth considering for certain self-employed borrowers that need financing to build, improve, or refinance owner-occupied commercial real estate. Key loan features include: 

  • Loan amount: Up to $5.5 million
  • Down payment: 10%-15% (for businesses established two years or less)
  • Repayment term: Up to 25 years

SBA 504 loans involve both a Certified Development Centers (CDCs) and a private lender, making the loan process more complex and time-consuming. If you qualify for this type of financing, it could take several months to complete the loan process.

SBA loan application process for self-employed individuals

Whether you’re self-employed or own a more traditional small business, the SBA loan application process may be intensive. But if you’re willing to put in a bit of legwork, your effort could be worthwhile to secure competitive business financing. 

Below are the basic steps of applying for an SBA loan while self-employed. 

1. Choose the right SBA loan. The SBA backs multiple types of loans. Different loan programs may work better for you depending on your needs and the eligibility criteria. 

2. Review eligibility requirements. Get a general idea of the minimum loan requirements you’ll need to satisfy before applying.

3. Check your credit. Review your personal and business credit scores before applying. (Tip: the minimum FICO SBSS score for an SBA 7(a) loan is typically 155.)

4. Prepare documentation. Be prepared with your business plan, financial paperwork (bank statements, business and personal tax returns, profit and loss statement, balance sheet, etc.), list of collateral, and other supporting documents. Preparing key information ahead of time could improve your chances of a successful loan application.

‍5. Choose an SBA-approved lender. There are several ways to find an SBA lender including searching for an online lender, working with a local bank or credit union, or using the SBA’s lender match system. Remember to compare offers to find the best deal for your situation.

Alternatives to SBA loans for self-employed borrowers

If you can’t find an SBA loan that works for you, here are some alternative borrowing solutions to consider.

  • Business credit cards: A business credit card is a type of credit card designed for business use rather than personal expenses. Even as a self-employed business owner, these flexible spending accounts may be easier to qualify for compared to business loans—especially if you have good personal credit. But beware of personal guarantees and higher interest rates with these accounts.
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  • Personal loans: Personal loans may be used for startups and businesses with revenue challenges, a lack business credit history, or little time in business. On the negative side, lenders may restrict how you can use the money you borrow with personal loans and you’re personally liable for the debt. According to the Federal Reserve, around 86% of entrepreneurs rely on personal credit (including personal loans) to finance their small businesses when they can’t access business credit. 
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  • Online lenders: Business financing from an online lender could offer a variety of funding solutions such as business term loans, equipment loans, business lines of credit, startup business loans, and more. However, while eligibility criteria tends to be more lenient compared to traditional banks and credit unions, you may also face higher interest rates and shorter repayment terms.