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What’s Involved in Getting a Self-employed Loan for a Foodie Business?

If you love food as much as we do here at Momma Cuisine, it’s probably crossed your mind to start a foodie business. Starting a business from home offering local-based catering services or opening a virtual restaurant taking online orders is an attractive prospect. However, if you’re like the 10 percent of Americans that are already self-employed, you’ll discover that raising the capital to get started in business is no small matter. 

For self-employed people, it’s often more difficult to raise funding. This is for a variety of reasons including no track record operating a business, question marks over the business model, or a poor personal credit rating. Nevertheless, don’t get discouraged. If it’s a passion of yours, then you’ll find a way. 

This article has been written to provide insights into securing a loan as a self-employed person to help fund your business dreams. 

Plan Out the Business First
If you’re starting a new business and not taking a self-employment loan out for one already in existence, then it’s important to draw up detailed plans. Or, to put it another way: How do you know how much to borrow if you only have imaginary financial numbers? You don’t…

If you don’t have existing business documents like a cash flow statement, a profit and loss summary, and a balance sheet, then create a business forecast. Estimate how much it will cost to get the business off the ground and to operate for a few months. Drill down to the specifics on costs for food produce suppliers, kitchen equipment, and more. Don’t guess the costs – do the legwork to confirm how much will be needed and then add a margin of safety for surprises. 

Also, bear in mind that sales projections are often higher than reality in the first year. Don’t underestimate the amount of capital that you’ll require to sustain your business in the early days.

Be Prepared to Apply for the Loan
When applying for one of the better self employed loans, the key is to be prepared ahead of time. It makes it much easier to complete the form(s) when having the right paperwork available. Being organized and ready, there’s no delay in hunting for the right documents or realizing that you don’t have them and needing to order fresh ones. 

It’s possible to apply for a loan even when you’re just preparing to start your business. It depends on the lender, the type of loan (secured or unsecured), and its purpose as to how long it will take to hear back.

As a self-employed person – or someone who’s about to be – your credit score matters. If your credit rating and history of managing credit or repaying loans isn’t ideal, this is likely to affect the decision. Lenders may ask for additional documentation or want to charge a higher interest rate. 

Documents Required for Self-employed Loans
A lender will assess the risk on their end and take a view on what return on their loan is needed to provide a reasonable risk for them. By being able to provide the right documentation, it makes their assessment easier. It also has the added benefit of demonstrating that you’re an organized person who has their act together – i.e., you’re ready, disciplined and unlikely to miss a loan payment. 
 
You might be surprised to learn that a bank statement is not always required for a personal loan application. Specialist lenders offering self-employed personal loans are not interested in seeing cash flow reports or a list of assets. With a lender that offers only self-employed loans or has a strong focus in this area, they deal with enterprising people starting or running their own business and know what traits to look for.

The information they’ll usually request includes:
Approximate credit score
The reason for the loan
Full name
Full address and primary contact number
Driver’s license number
Date of birth
Social security number
Approximate income per month

In addition, the loan company will need to know where to transfer the funds. This includes the account details and necessary routing numbers (double-check the details).

Applications are often submitted online now where scanned documents to upload are sufficient. On occasion, companies can look over scanned versions to provisionally process the loan application and wait for the physical version to arrive in the mail as a final verification of their authenticity. 

IRS Tax Documents
Some lenders will request to see tax returns for the last couple of tax years (signed). The need to reveal these depends on both the lender and your credit score. 

The forms that are needed for such a request include the 1099-MISC and both the Schedule C and SE too.

Can You Get a Self-employment Loan without Documentation?
Applying for a self-employment personal loan without tax return documentation is difficult. Not every lender needs to see them, but the majority will ask. 

What will matter is your current debt-to-equity (DTI) ratio and the risk rating that applies to it. A higher credit score which often tracks the DTI and risk rating is also a factor too. When these indicate that you’re a lower risk, then it’s possible a lender may approve a loan without IRS tax documentation.
If a loan approval is forthcoming, the interest rate might be higher than you’d expect. However, it factors in the lack of full documentation despite other lower risk factors. If you’re concerned about getting approval or having been turned down previously, there is always the option to apply for a no credit check personal loan instead.

When starting a foodie business, there’s a lot to consider. Depending on how sizable the operation will be, and any people needed to work in the business, the amount of capital required could be substantial. However, when keeping the operation relatively small and using a home kitchen initially, the startup costs can be reduced the manageable levels. This still leaves open the possibility to expand into a commercial kitchen at a later time when the funding or revenues permit it. The sky is the limit, really. 

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