They often earn good money and have excellent credit ratings – and yet many banks find it difficult to grant loans to freelancers and self-employed people. One reason: their income often fluctuates. Five tips on how it can still work.
1. The first step is to go to your bank
It is actually always advisable to contact your bank first, advises Jörg Buschan, an expert in credit law at the Association of German Banks in Berlin. This is because they know the financial situation of the person interested in a loan best – and can therefore give valuable advice.
If your bank makes a loan offer, it’s worth comparing it with offers from other banks, says Buschan. Good to know: This is also possible online.
Depending on what plans you have for the money, subsidized loans from the state bank KfW may also be an option. For example, there is the ERP subsidized loan for SMEs. This can be used by both self-employed people with a small or medium-sized company and freelancers. The prerequisite for this loan: The funds are used as investments in self-employment or freelance work.
2. Prove regular income and creditworthiness
“It is important for banks to have a regular income of sufficient size,” says Andreas Lutz, Chairman of the Association of Founders and Self-Employed People in Germany (VGSD) in Munich. This can also come from non-self-employed work, rental income or capital gains.
Also relevant is creditworthiness – i.e. the timely payment of previous loans. If a loan is applied for, the bank obtains the customer’s consent to query the Schufa credit agency. Tip: “Once a year, you can request a free self-disclosure from them – and from similar service providers – to get an idea of your own creditworthiness,” says Lutz.
3. Refer to collateral
Freelancers and self-employed people can significantly increase their chances of getting a loan if they have certain collateral. “This includes, for example, a debt-free property, term life insurance or a securities account,” says Andreas Lutz.
Your spouse or a family member may also be willing to guarantee the loan.
4. Have important documents ready
The crucial question for the bank is whether it believes the applicant is actually able to service a loan. In order to get a comprehensive picture, they request the annual financial statements of the past three years from self-employed people and freelancers. From this, sales and profits as well as the return on sales can be derived and compared, explains Andreas Lutz from VGSD.
Also important: “Income tax notices for the past three years as well as bank and deposit statements,” says credit law expert Buschan. You should also bring your ID card to prove your identity.
5. Important decisions before taking out a loan
Done, the bank signals its willingness to grant a loan to a self-employed person or freelancer. What else should you keep in mind?
Monthly expenses: “The monthly expenses for interest and repayments should not be too high relative to income,” says Andreas Lutz. This prevents an unexpected deterioration in income from leading to financial overload.
Credit default insurance: “It may be worthwhile to consider taking out credit default insurance,” says Jörg Buschan. It covers risks if a customer does not pay. This means that borrowers themselves do not get into financial difficulties with the bank.
Flexibility: Freelancers and self-employed people should make sure that they have a certain amount of flexibility when repaying the loan installments – for example, they can make a special repayment if business is going well. “This way, the loan is paid off more quickly,” says Buschan.
Additional advice: If you are self-employed and are applying for a loan for the first time, you can get support from a consultant who specializes in small businesses and start-ups. Those affected receive valuable ideas for their business – “and perhaps also the advice not to take out a loan because the planned investment is not sufficiently worthwhile,” says Andreas Lutz.
Private loan: Instead of guaranteeing a loan, close relatives may even be willing to grant a loan directly to self-employed people or freelancers. “Such a loan often has lower interest rates and is more flexible,” says Lutz.
