A complete guide for independent contractor loans

Operating as an independent contractor is often described as having the ultimate freedom, but the financial side of the business model can be challenging. You’re required to make quarterly tax deposits, pay self-employment taxes, and keep track of cash inflows and outflows. You also might need a loan at some point. This article explains what your options are and how to get one.

Independent contractors who work alone may choose to apply for an Employer Identification Number (EIN) or operate as a sole proprietor under the IC’s Social Security number. That means that loans for independent contractors can be structured as small business loans or personal loans. Explore the differences in more detail below.

Who qualifies as self-employed?

An individual working under their Social Security number instead of an EIN is not considered a legal business entity in the eyes of lenders. If you fall into this category and will soon be seeking a loan for your business, we encourage you to set up a legal business entity to expand your funding options. Without that, you’ll need to apply for a personal loan when you need extra money. Legal entity types include:

• Sole proprietorships: Any individual can declare themselves a sole proprietor to provide paid services to clients or customers, but they won’t be recognized as a legal business entity until they acquire an Employer Identification Number. An EIN doesn’t cost anything, and it designates you as a business to lenders.    
• Partnerships: A partnership is a legal business entity in which two or more individuals share the ownership responsibilities of the business. That also means they share any business liabilities. Partners can apply for a small business loan by submitting a joint application that includes business financial statements and a business plan. 
• Limited Liability Companies: A limited liability company (LLC) is a legal business structure that protects the principals of the business from personal liability for the business’s debts or obligations. Variations of the LLC model include limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs). 

The IRS recognizes principals in each of these business entity structures as “self-employed” individuals. That’s not the same as being an independent contractor. ICs receive a 1099 at the end of the year that they can use to declare their income. Self-employed individuals can be ICs, but they can also be freelancers or gig workers who need to self-report income.

What are independent contractor loans?

Business loans for 1099 independent contractors can be useful for equipment purchases, debt consolidation, or infusing new cash flow into the business. They’re specifically designed for self-employed individuals, freelancers, gig workers, and other non-traditional employees who don’t receive regular W-2 income from an employer.

These loans can be challenging to obtain because independent contractors often face hurdles that traditional employees don’t. Since independent contractors can’t provide standard pay stubs, lenders need alternative proof of stable income and ability to repay. Interest rates may also be slightly higher than for traditional employees due to perceived risk.

Learning how to get a loan as an independent contractor can be a trial-and-error process. The first step is to find the right lender. Some lenders specialize in serving the self-employed market. Others offer creative lending options, like secured charge cards and business lines of credit. The next few sections delve more deeply into this.

Loan options for independent contractors

Loan options for independent contractors include SBA loans, personal loans, lines of credit, and term loans. There are also payday loans for 1099 employees. Avoid them if you can—the interest rates and fees are significantly higher than traditional loans. It’s important to carefully assess your financial position before applying for any type of debt financing.

Debt financing vs. equity financing

Debt financing is when you borrow money and repay with interest over a set period of time, like with a business loan or line of credit. Equity financing, on the other hand, is when you sell shares of ownership in exchange for capital from investors.

Read more

SBA loans

The United States Small Business Administration (SBA) offers government-backed financing options to legal business entities that might not qualify for traditional bank loans. The loans aren’t issued directly by the SBA because they are not a lender. They work with a list of “approved” lenders by guaranteeing a portion of the loan repayment.   

This guarantee reduces the risk for lenders, making them more willing to work with small businesses and independent contractors. SBA loans typically offer competitive interest rates, longer repayment terms, and more flexible qualification requirements than conventional business loans. There are several different types of SBA loans. 

SBA 7(a) Loan

The SBA 7(a) loan is the most common and versatile type of SBA financing available. These loans can be used for working capital, equipment purchases, real estate acquisition, and refinancing existing debt. Key features include:

• Loan amounts up to $5 million
• SBA guarantees up to 85% of loans of $150,000 or less
• Repayment terms of 10 years for working capital and equipment, up to 25 years for real estate
• Must operate a for-profit business in the United States
• Must demonstrate financial need and show you’ve explored other financing options

SBA Express Loan

For businesses that need faster access to capital, the SBA Express loan offers an expedited approval process with decisions often made within 36 hours. Key features include:

• Loan amounts up to $500,000
• SBA guarantee of 50% (lower than standard 7(a) loans)
• Same repayment terms as 7(a) loans (10-25 years)
• Can be used for working capital, equipment, and business expansion
• May have slightly higher interest rates due to reduced government guarantee

SBA Microloan

SBA microloans are designed for small businesses and startups that need smaller amounts of capital. Key features include:

• Loan amounts up to $50,000 (average around $13,000)
• Repayment terms up to 6 years
• Interest rates are typically between 8% and 13%
• Can be used for working capital, inventory, supplies, equipment, and furniture
• Cannot be used to pay existing debts or purchase real estate
• Often includes business training and technical assistance

If you’re ready to explore SBA loan options for your business, visit Bluevine to learn more about how SBA financing can help you grow and thrive.

Make the most of your SBA loan with a line of credit.

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Personal loans

Business loans for sole proprietors are not necessarily available to independent contractors. One example of this is ICs that don’t register as a business entity. If you are operating under your Social Security number, and not an EIN, the SBA will not consider you for a small business loan. That leaves personal loans as your best option. 

There are two types of personal loans. A secured loan is backed by collateral or security that guarantees repayment. An example of this is using a physical asset (home, car, artwork, etc.) to secure the loan. An unsecured personal loan doesn’t require security. An independent contractor can apply for an unsecured loan without putting their assets at risk. 

Approval for unsecured personal loans is based on the applicant’s personal credit score and credit history. That means that late or missed payments can impact the business owner’s personal credit score, but not the business credit score, which may not exist. Unfortunately, that also means the business is a personal asset that’s at risk if you default on the loan.

Why choose Bluevine?

Bluevine reports your line of credit repayment activity to Experian, which can help build your business credit score if you make consistent, on-time repayments.

Explore the differences between business and personal credit

Line of credit

Like small business loans, business lines of credit are only available to registered business entities. Non-registered individuals will need to apply for a personal line of credit. Most of the characteristics are the same, but the approved amount of funds is usually significantly lower when granted to an individual. Business LOCs typically have higher limits. 

A line of credit looks like a loan, but you don’t need to take all the funds in one lump sum. LOCs come with a “draw period” during which you can withdraw up to the amount you’re approved for. You can also reuse an LOC. If you’re approved for $5,000, draw $1,000, and pay back $500, you still have $4,500 left to draw. You can’t do that with a loan. 

Approval for a personal line of credit is based on personal credit score and credit history. Business lines of credit are more complicated. Lenders normally look at time in business, financial statements, and whether the independent contractor can post collateral to secure the funds. The SBA offers lines of credit in its 7(a) loan program. 

Apply for a Bluevine Line of Credit in minutes and get financing that’s tailored to your business needs.

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Term loans

A loan that has a fixed payment term and fixed interest rate is called a “term loan.” It’s a general descriptor that can apply to personal or business loans. It’s also a differentiator from lines of credit for several reasons. LOCs are typically set up with a variable rate of interest based on when the borrower withdraws funds. It’s part of their flexibility.

Payments for a term loan are set at a fixed amount for a specific period. Auto loans are usually set up this way. For instance, an automobile selling for $23,838 could be paid off in 60 months with monthly payments of $450 a month, assuming the interest rate is 5%. Business loans for sole proprietors are often set up this way, making them easier to budget.

Independent contractors can use term loans for business growth, equipment purchases, or operational expenses. Eligibility requirements and interest rates vary by lender. Personal loan applications are assessed based on personal credit history. Business term loan applications are assessed based on business credit scores, credit history, and past financial performance. 

Co-signed loans

There are times when even the most lenient of lenders won’t approve a loan for an independent contractor. Denials are usually based on risk analysis, insufficient business history, or poor personal credit scores. ICs often have difficulty proving their income, especially if they don’t have several years of financial statements that most traditional lenders require. 

Finding a co-signer can increase your chances of approval, provided they have good credit and a stable financial history. This tactic can also be effective when the amount approved by the lender isn’t sufficient for your business needs. Presenting a solid co-signer could reduce your risk factor and make it possible to borrow higher amounts. 

Speaking of risk, your co-signer takes on some of it when they put their name on your loan application. If you default, their credit score could take a hit. If you’re late on your payments, that activity will be reflected on the co-signer’s credit report. Anyone willing to co-sign a loan or line of credit for you should be aware of these potential consequences.

When is the best time to get a business loan?

“The golden rule is to secure extra cash before you need it—ideally during growth phases when your financials are sparkling, like after a strong quarter or landing a big client. Waiting until cash flow’s a trickle often means higher rates and rushed terms. For instance, if projections show seasonal lulls or expansion costs looming in 6 months, that’s your cue to shop lines of credit. Proactive borrowing isn’t a sign of weakness; it’s smart chess, positioning you to seize opportunities without derailing momentum.”

-Michelle Blakemore, Founder of BeMore Accounting & Consulting

Where to get independent contractor loans

Being an independent contractor doesn’t change how or where you can apply for independent contractor loans. Banks and credit unions are traditional destinations for loan applicants, but you can also apply to online lenders and digital banks like Bluevine. Here’s what to look for:

• Banks and credit unions: Traditional lenders like banks and credit unions can offer larger loan amounts, but they have strict requirements and slower approval processes. Many are also reluctant to offer loans for 1099 independent contractors with sparse business credit histories. This option is better for more established businesses. 
• Online lenders: This is an option that’s increasing in popularity with small businesses and independent contractors. Online lenders typically offer faster funding and more flexible lending requirements, but they may charge higher interest rates than traditional lenders. You’ll also want to research them carefully to ensure they’re legitimate.   
• Fintechs (like Bluevine): Fintechs, also known as digital banking platforms, are the ideal solution if you’re looking for small business loans for gig workers or 1099 loans. They tailor their loan process for contractors and small businesses with streamlined applications and expedited approvals. 

How to apply for independent contractor loans

Learning how to get a loan as an independent contractor is not difficult. We’ve broken it down into 10 simple steps. Follow this guide carefully to set yourself up for success. 

1. Research lenders: Your local bank or credit union might seem like the obvious choice for a lender, but don’t limit yourself to just them. Research online banking platforms and fintechs like Bluevine before you make your final decision.
2. Gather financial documents: Traditional lenders want to see personal business tax returns, profit and loss statements, balance sheets, and bank statements. Online lenders and digital banks have more streamlined applications and use advanced tech to help speed up underwriting. 
3. Prepare a business plan: What are you going to do with the money? No lender is going to approve you for a loan without a solid business plan. Have someone create one for you, or do some online research and create it yourself. 
4. Check your credit report: SBA lenders generally require an applicant’s credit score to be at least 680 to be considered for a loan approval. Independent contractors with lower credit scores can get approved by other lenders, but interest rates may be higher. 
5. Calculate your debt-to-income ratio: Take your total monthly debt payments and divide them by your monthly gross income. Multiply that number by 100 to get your debt-to-income ratio (DTI). Lenders prefer that number to be under 35%.  
6. Fill out the loan application: Don’t try this until after you’ve completed the previous five steps. You’ll want to be ready when lenders ask for financial documents or a business plan. You’ll also want to know your credit score and DTI, so there are no surprises.
7. Submit documentation: Aren’t you glad you completed those previous steps? This is the point where lenders will start to ask the hard questions. You should be ready to answer them with documented financial numbers and a solid business plan. 
8. Respond promptly to lender requests: Two things to remember are not to take anything personally and that the lender is in charge. If they ask for something, respond as promptly as possible. It’s usually a good sign that they’re communicating. 
9. Provide proof of business ownership: This is tough to do if you haven’t registered your company as a business entity. If you have, show the EIN confirmation letter you received from the IRS. If not, show your bank account statement, if they’ll accept it. 
10. Provide additional information if requested: Some lenders may ask for additional certifications, insurance documentation, vendor contracts, client agreements, or business resumes.

Independent contractor loan FAQs

Can independent contractors get a loan with bad credit?

Yes, independent contractors can get loans with bad credit, though they may face higher interest rates and stricter requirements. Options include online lenders specializing in bad credit loans, secured loans, or microloans that focus more on current income than credit history. You can also ask someone with good credit to co-sign for you. 

What documentation proves self-employment or 1099 income?

Lenders typically require tax returns from the past 1–2 years, recent bank statements showing income deposits, 1099 forms, and profit and loss statements. Additional documentation may include business licenses, client contracts, or invoices that demonstrate ongoing work and income stability. Ask your banker if they need more than that.

How do I choose the right loan for my business needs?

Start by clearly defining how much you need and what you’ll use the funds for, then compare loan options based on interest rates, repayment terms, and eligibility requirements. Consider the total cost of borrowing and whether the monthly payments fit comfortably within your budget. Don’t limit yourself to traditional banks and credit unions.