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118118 Money Team  •  September 30, 2023

With the rising number of self-employed individuals and freelancers in the UK, there is a growing demand for financial products tailored to their unique needs. One such product is the self-employed loan, designed to cater to those who might not have the regular income proof required by traditional lenders. This guide provides an insight into obtaining such loans, especially for those with a history of poor or bad credit.

Requirements for Loans for Self Employed

Being self-employed offers the freedom and flexibility of being your own boss, but when it comes to securing loans and credit cards, freelancers or self-employed individuals often find the process a tad more intricate than their employed counterparts. Financial institutions, in their effort to mitigate risks, typically have a set of requirements to determine a borrower’s reliability and ability to repay. For the self-employed, these requirements are slightly different, taking into consideration the nature of the income stream. These requirements aren't just a formality but serve as a safety net for both the lender and borrower. Here's an in-depth look into what most lenders, including 118 118 Money, would typically require:

  1. Proof of Steady Income: As a freelancer, your income might be irregular compared to a salaried individual. Lenders will want assurance of your income stream.
    • Bank Statements: A history, usually of the past 6-12 months, showcasing regular income flow. This serves as a testament to your earning capabilities.
    • Tax Returns: Last two or three years of tax returns can provide a yearly snapshot of your earnings. This can be especially beneficial if you've had a good financial year.
    • Profit and Loss Statements: If you maintain business accounts, these can be crucial. They not only show your income but also your business expenses, giving lenders a complete picture.
  1. Business Stability: How long have you been self-employed? Lenders prefer individuals who've been in the business for a significant period, usually two years or more, as it implies stability.
  2. Business Plan: Especially for those newly self-employed or seeking business loans, a detailed business plan can be a boon. It not only shows your expected income but also demonstrates you've put thought into your business's future.
  3. Identity and Address Proof: Standard across all loans, lenders will want to verify who you are and where you live. This can be in the form of a driving license, passport, utility bills, or council tax statements.
  4. Nature of Industry and Contracts: Some lenders may delve deeper into the nature of your work, the industry volatility and the stability of your clientele. A freelancer with a long-term contract or retainer might be seen in a more favourable light than one with sporadic gigs.

Options for Loans for Self Employed with Bad Credit

The journey of being self-employed is filled with peaks and valleys. One major valley many freelancers face is securing a loan, especially with a compromised credit history. Fortunately, there are options available tailored for such circumstances. Let’s delve into some of these alternatives:

  1. Secured Loans: When traditional routes might not be open due to bad credit, using assets as collateral can provide a fallback. These assets might be property, vehicles, or valuable items. The advantage here is that lenders, seeing the reduced risk, might offer more competitive rates. The trade-off is the risk of losing the asset if repayments are not met.
  2. Guarantor Loans: A significant option for those struggling with credit issues. Here, another person, be it a friend or family member, agrees to back your loan and step in if you default on repayments. The confidence provided by a guarantor might mean lenders are more willing to approve your loan request. However, it's crucial both you and your guarantor understand the obligations.
  3. Specialised Bad Credit Loans: Certain lenders, like 118 118 Money, understand the unique challenges faced by the self-employed, especially those with adverse credit histories. They offer products specifically designed for this niche, taking into account not just credit scores but also business health, future earnings potential, and more. The interest might be a tad higher than standard loans but is often more manageable than other bad credit alternatives.
  4. Credit Unions: These are community-based setups where members pool together resources to provide loans and other financial services to each other. Since they operate on a smaller scale and have a community focus, they might be more understanding and accommodating of your financial situation than larger banks.
  5. Invoice Financing: For freelancers with unpaid invoices, this might be an option. Lenders provide an advance on pending invoices, which can then be repaid once clients settle their dues. This can be a handy way to manage cash flow, especially for those who work on big projects with extended payment terms.

How to Improve Credit Score for Loan Approval

For freelancers and the self-employed, your credit score becomes even more crucial when trying to secure a loan. Improving your credit score can significantly enhance your chances of obtaining favorable loan terms and interest rates.

  1. Regularly Check Your Credit Report: Scrutinise it for errors such as wrongly attributed late payments, or credit accounts that you don't recognize. If you spot inconsistencies, challenge and correct them promptly.
  2. Timely Bill Payments: The most effective way to improve your credit score is by paying your bills on time, every time. This includes not just loan or credit card payments, but also utilities, rent, and other regular commitments. Setting up direct debits can ensure you never miss a due date.
  3. Reduce Outstanding Debt: Begin by listing all your debts. Prioritize those with the highest interest rates for repayment. As you pay down your balances, avoid the temptation to use those credit cards until they're at a minimum balance.
  4. Avoid New Credit Applications: Every time you apply for credit, a hard inquiry is noted on your credit file. Multiple inquiries in a short span can negatively impact your score. Hence, only apply for new credit when absolutely necessary.
  5. Utilise Credit-Building Tools: Consider using credit-building cards, like those provided by 118 118 Money. These are specifically designed to assist users in establishing or rebuilding their credit. They often come with lower limits and might have higher interest rates, but regular and responsible use can demonstrate creditworthiness over time.
  6. Keep Old Accounts Open: The length of your credit history plays a role in your credit score. If you've managed an old account responsibly, keep it open, as it can positively affect your credit age.

Pros and Cons of Freelance Loans


  • Flexible repayment terms.
  • Tailored to unique freelance income structures.
  • Potentially lower interest rates if secured against assets.


  • The risk of asset seizure in the case of secured loans.
  • Potential for higher interest if deemed high risk.
  • Requires thorough documentation.

Types of Loans for Freelancers

  1. Personal Loans: Ranging from £1000 to £5000 with varied APRs.
  2. Credit Cards: Designed for freelancers, with limits ranging from £250 to £2000 GBP.
  3. Secured Loans: Backed by assets like property or equipment.
  4. Business Loans: Specifically for business-related expenses.

Navigating the Loan Application Process

  1. Research to find a lender like 118 118 Money that caters to freelancers.
  2. Prepare all necessary documents.
  3. Understand the terms and conditions.
  4. Use soft credit search features, ensuring your credit score remains unaffected.
  5. If approved, ensure you understand repayment structures.

Collateral Options for Self Employed Loans

For those considering secured loans, potential collateral includes:

  • Residential or commercial property.
  • Vehicles.
  • Business equipment.
  • Other tangible assets with significant value.

Interest Rates and Repayment Terms for Self Employed Loans

The interest rates and repayment terms can vary based on several factors:

  • Your credit score.
  • The loan amount.
  • The loan duration.
  • Collateral provided (if any).

For instance, 118 118 Money offers varied APRs, ensuring a flexible approach tailored to freelancers’ needs.


The life of a freelancer can be financially challenging, but with a plethora of loan options available, it doesn't have to be. Whether you've had past credit issues or are just starting out in your freelance journey, lenders like 118 118 Money provide avenues to secure funding, ensuring your financial stability. It’s always vital to be informed and choose a loan product that aligns with your needs and repayment capabilities.