The Best Business Loans and Financing Options for Freelancers

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Microloans
Some freelancers might find that microloans are a good solution to their funding problems. Microloans are almost always less than $35,000, and typically range from $5,000 to $10,000. The best part about microloans is that they tend to feature low interest rates.

The downside of crowdfunding is that it requires a lot of time, thought and effort on your part, both to craft a strategic campaign and to follow up with donors afterwards. Crowdfunding may not be for you if you don’t have the time or inclination to make your campaign a full-time job for a while.

Invoice factoring and financing
B2B businesses that must maintain a more or less consistent cash flow to function may benefit from invoice factoring. If you suffer from late-paying customers, invoice factoring can be a godsend.

These loans are often aimed squarely at marginalized groups, like veterans, minorities and women, that might have a hard time getting funding from a traditional source, but freelancers can capitalize on the lenient terms and rates offered by microlenders.

The gig economy is booming, with up to a third of the U.S. workforce now working as freelancers. While there are many perks to freelancing, most freelancers are attracted to the fact that they can choose both when they work and what jobs they work on. The freelancer who seeks opportunities to grow will face many issues, not least of which is the challenge of securing a loan from a bank or other traditional lender.

The freelancer who seeks opportunities to grow will face many issues, not least of which is the challenge of securing a loan from a bank or other traditional lender.

Most banks view freelancers as high-risk, and as such, may be unwilling to enter a loan agreement. He or she alone is liable for all debts and losses his or her business may incur because a freelancer is considered a sole proprietor. , if the freelancer gets hurt or sick and can not work– or is just terrible at running a business– the bank is left holding the bag.

Rates, fees and terms will vary from lender to lender, but both invoice factoring and financing can be very good alternatives to a traditional business loan for freelancers who run on a B2B model.

Even when you take out a personal loan with the intention of using it for your emerging business, the lender will only look at your personal credit history and financial health. The caveat here is that you won’t be able to borrow as much money as you would with a business loan, as personal loans tend to max out at $35,000 to $50,000.

Most banks view freelancers as high-risk, and as such, may be unwilling to enter a loan agreement. Because a freelancer is considered a sole proprietor, he or she alone is liable for all debts and losses his or her business may incur. If the freelancer gets hurt or sick and can not work– or is just terrible at running a business– the bank is left holding the bag.

Crowdfunding
Crowdfunding is an excellent way for new business owners to source funds, particularly if your business enterprise is in the creative arena. With rewards crowdfunding, potential backers fund your project and in return receive access to your products or work.

The good news is that lines of credit often have more reasonable rates, fees and repayment terms than credit cards.

Typically, these non-traditional lenders have more relaxed loan approval criteria and a swifter approval process. Importantly, your personal income, assets and credit score are assessed for loan approval, not the value of your business.

Personal loans
Business loans– whether from a traditional source, like a bank or credit union, or from a nontraditional online lender– are almost always outside the reach of a freelancer. Typically, only well-established businesses with healthy profit histories, low debt and good credit are eligible for business loans.

Lines of credit
You may already know that banks issue lines of credit, but did you know that many online lenders offer lines of credit? If this reminds you a credit card, it’s because credit cards are essentially simplified lines of credit!

These are the different types of financing available to freelance businesses.

Invoice factoring is not the same as invoice financing, though the two share similar properties. While invoicing factoring works by selling unpaid invoices, invoice financing is more of a loan in which your invoices act as collateral. Rates, fees and terms will vary from lender to lender, but both invoice factoring and financing can be very good alternatives to a traditional business loan for freelancers who run on a B2B model.

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