On average, bloggers who write full-time for business organizations earn between $40,000 and $80,000 annually, according to Fit Small Business. Working as a freelance writer is appealing because you set your hours and rates, and you get to choose the clients and projects you can handle.
Not to mention, you have unlimited freedom to do what you love most while making a living. However, the life of a blogger isn’t as easy as many people assume. Like other freelancers, bloggers face many challenges, and one of them is getting a loan.
Despite earning decent pay every month, there are times when freelance writers find themselves in need of additional cash. As a blogger, you may need financing to purchase a new laptop, the best blogging tools and recommendations, a new vehicle, or a home. So, how can you overcome the obstacle of obtaining a loan as a freelance writer? Here are some tips on how to get loans when you’re a blogger.
Know the challenges you’ll face
Whether you’re looking to access funds to finance a significant purchase like buying a car or cover day-to-day work expenses, be prepared to face various hurdles. One of those obstacles is showing lenders proof of income and the potential to earn a steady salary.
Fortunately, you can overcome this challenge if you register as a taxpayer. Remember, once you register with the Internal Revenue Services as a self-employed individual, you can start filing income tax returns. Typically, filing taxes is enough proof that you earn income. Your income tax return documents will also indicate how much money you make per year.
Be cautious of tax deductions
Another challenge bloggers face when obtaining loans is tax deductions. As much as deducting expenses from your taxes sounds ideal, this practice can lower your loan limit. That’s because your taxable income reduces every time you deduct expenses from your taxes. In most cases, lenders will require you to increase your down payment rate if you need a car or home financing.
Alternatively, you’ll have to settle for a small loan amount if you need cash to cover other expenses. To overcome this obstacle, consider adding tax deductions like mileage, home office expenses, travel costs, and meals back to your taxable income.
Find out what lenders want
Formal lending institutions like banks and credit unions are strict when approving loan applications for freelancers, including bloggers. They consider the irregular income status of freelance writers as a significant risk. So, before you can get loan approval, take time to understand what lenders look for when approving loans. Generally, lenders will look into various factors that help them determine your ability to repay your loan.
These factors include how much income you earn, the stability of your blogging business, and location. Lenders will also evaluate the potential your freelance writing business has to generate more revenue and remain steady.
To increase your chances of obtaining funds from credit unions or banks, you’ll need to prove that you’ve been earning income for at least two years. If your income has been unstable, consider waiting for another year before applying for a loan. That way, you’ll have enough time to increase your earning rate, thus enhancing your borrowing capacity.
Register your blogging business
Registering your freelance writing business is critical if you want to secure an auto loan, mortgage, or other loans from banks. When you have business registration papers, lenders tend to approve your loan application fast. This is because they have sufficient evidence that you earn a decent income and have the potential to pay your loan within the set timeline.
As a registered blogger, you’ll also attract more clients because your business appears legit. In turn, your business profitability increases, creating more opportunities to obtain loans. Besides, the business registration process isn’t as tricky as it sounds. All you need to do is form a legal entity. Too often, bloggers choose to operate without paperwork, which limits their ability to take loans.
Therefore, register your business as an LLC (limited liability company) or corporation, and get a free employer identification number (EIN). Obtaining an EIN enables you to file taxes, an essential step in proving your business’s legitimacy and potential to earn a stable income.
Organize your financial documents
Lenders want to be sure that you won’t default on loan repayment due to lack of income. That’s why they request pay slips and a certificate of employment to evaluate your income history. As a freelance writer, you may not be in a position to provide these documents. But that shouldn’t discourage you from applying for loans. You can submit other documents that prove your capacity to earn income and repay borrowed funds. Documents lenders accept for personal loans, mortgage, and auto loans include bank statements, stock certificates, and land documents under your name.
Don’t forget to provide a list of assets, including bank accounts, IRAs, 401Ks, and other investment accounts. Proof of asset ownership increases the possibility of obtaining loans from different lending organizations. Finance experts also recommend attaching income tax return documents to assure potential lenders you have been earning a steady income for the last two years. Given freelancers don’t get a W-2 form, use a 1099 form to file your tax returns.
Don’t forget to provide debt records
Your debt records will have a significant impact on your loan approval. For instance, let’s say you’re looking to get pre-approval for a mortgage. Lenders will assess your debt statements to determine if you’re fit to access different home loan types. So, whether you’re looking to secure a conventional mortgage, FHA loans, cash-out refinance, or VA home loans, make sure your debt-to-income ratio matches the standard range.
Most lenders will approve your mortgage application if your debt-to-income balance is between 36% and 43%. If your debt-to-income percentage is higher than the specified range, make an effort to reduce your debts before applying for a loan. Also, find ways to increase your blogging income and focus on saving. Your ultimate goal is to ensure you have sufficient funds to clear your loan even when the workflow is low.
Maintain a good credit score
Before lenders can approve your loan request, they’ll assess your credit history. Doing so helps them determine your ability to pay borrowed funds. Lenders will most likely offer mortgage, auto financing, and personal loans if your credit score is high. Ideally, maintaining an excellent credit score shows that you’re creditworthy, meaning you can repay loans on schedule. With this in mind, always review your credit score before applying for any loan.
Take advantage of online tools like Equifax or FICO to get your credit score report. If your score falls below the standard range, you can enhance it by following several tricks. The first step to improving your credit score is paying bills on time. Also, keep your old credit accounts open, avoid applying for new credit cards, and maintain low balances on your credit cards.
Securing loans for a home, car, or other personal expenses has never been easy, but the process can be more daunting for freelance bloggers. Lenders tend to be strict when dealing with freelance borrowers due to their unstable income status.
However, you can still obtain loans when you’re a blogger if you register your blogging business, file tax returns, maintain a good credit score, and prove asset ownership. Most importantly, understand the challenges freelancers face during loan applications and what lenders want. That way, you can prepare in advance to make the borrowing process less stressful.