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One downside of leaving a traditional 9-to-5 for a life of self-employment is navigating your personal finances as a sole proprietor. From invoicing, to estimating taxes, it’s all on you — because you’re the boss now.

Qualifying for a personal loan while self-employed could also present some challenges. Self-employed individuals may have a need for a personal loan, but may find it difficult to produce traditional documentation, like W-2s or pay stubs, used to verify income. But, there may be options to fit your loan needs after all.

How to Get a Personal Loan if You’re Self-Employed

A brief personal loan explanation — a personal loan is a type of installment loan that can be used for nearly any personal expense, including home improvements, a work sabbatical, or consolidating your credit card debt. If you’re considering making a big purchase, like buying an engagement ring, a personal loan can be an alternative to using a credit card, if you don’t have the means to pay the balance off right away.

Personal loans are typically unsecured, meaning a lender won’t require collateral. Though they can also be secured, usually by the asset purchased with the loan. Unsecured loans are usually approved based on the financial standing of the borrower, and typically include their credit history and current income.

Lenders often evaluate a potential borrower’s income as a major factor in their decision-making process. Those who are self-employed may find this a tad more challenging than someone who works a traditional job with regular payments.

Self-Employed Loan Requirements

Loan requirements for self-employed individuals will be similar to the typical loan requirements as determined by the lender. In addition to evaluating factors like the applicant’s credit score, many lenders will require proof of income.

Traditional documentation used to verify income includes pay stubs and W2s. However, self-employed people may have some difficulty producing these documents, because they often aren’t W2 employees. It is possible for self-employed individuals to show proof of income, but it may require a little more legwork.

In general, lenders are looking for borrowers who have income stability and it can help if the borrower has been working in a single industry for at least two years. A short employment history could indicate that you are a borrowing risk.

Recommended: Typical Personal Loan Requirements Needed for Approval

Showing Proof of Income When Self Employed

Those who are self-employed have a couple of options for showing a lender they have sufficient and reliable income. Here are a few options that self-employed individuals could provide as documentation to prove their income.

Tax Statements. Self-employed individuals can use tax statements, like their 1099 to offer proof of income. This form should outline your wages and taxes from the previous year. Lenders often view tax documents as a reliable source of income proof because they are legal documents.

Bank Statements. Bank statements could be used if there is a regular history of deposits that illustrate consistent income.

Profit and Loss Statement. This document provides an overview of your costs, expenses, and revenue.

Court-ordered agreements. These may include things like alimony or child support.

Keep in mind that each lender will likely have their own application requirements, so be sure to read those too. Contact the individual lender if you have specific questions on the types of documentation they’ll accept.

Consider Having a Cosigner

In the event that you are still struggling to gain approval for a personal loan with your self-employed proof of income, one option is to consider adding a cosigner. A cosigner is someone who agrees to pay back the loan should you, the primary borrower, have any trouble making payments.

A cosigner can be a close friend or family member, ideally one who has a strong credit history who will strengthen your loan application.

Ready to Improve Your Financial Life?

Personal loans can be useful for those who are looking to consolidate debt, cover the cost of an emergency expense, or pay for other personal expenses like a home renovation or wedding costs. The personal loan average interest rate is lower than the average credit card interest rate.

If you’re interested in a personal loan be sure to shop around to compare the interest rates and terms available to you at various lenders. Look into any fees, especiallying prepayment penalties if you are interested in paying your personal loan off early. As you browse, consider SoFi’s Personal Loans, which have no fees required and offer competitive interest rates to qualifying borrowers.

Why It’s Difficult for the Self-Employed to Get a Personal Loan

It can be more challenging for self-employed individuals to provide proof of income to lenders, which can make it more challenging for them to get approved for a personal loan. But it’s important to note that each loan application is unique, and employment status is just one consideration.

For example, a self-employed individual who has a stellar credit history and who has been self-employed for a few years may be in a better position to apply for a personal loan than someone who has just transitioned into managing their own business.

The Income Challenge

Proving consistent and stable income is the biggest challenge for self-employed individuals. Because you are not guaranteed the same payment each pay period, lenders may request specific documentation in order to verify the fact that you have enough cash coming in to pay for the personal loan. Some lenders may request tax returns for several years in order to verify your income.

Consistency Matters

Consistency in income is another major hurdle for the self-employed. It’s not uncommon for self-employed people to experience fluctuation in their income. While some slight fluctuation may be acceptable to a lender, for the most part they are looking for consistent payments and it’s even better if there is an increasing trend over time.

Personal Loan Alternatives When Self-Employed

Personal loans aren’t the only option for self-employed individuals looking to borrow money to pay for expenses. Other options to consider a credit card, cash advance, or a home equity loan.

Credit Cards With 0% APR Promotions

Credit cards can have high-interest rates, but with a 0% APR promotion, a credit card could be a great tool to pay for an upcoming expense. Just be sure to pay off the credit card before the promotional period ends and interest starts accruing.

Recommended: Average Credit Card Interest Rates

Cash Advances

A cash advance is a short-term loan generally offered by your credit card which allows you to borrow cash against your existing line of credit. Cash advances can provide an avenue for you to get quick access to cash, but there may be additional fees and a high-interest rate for borrowing. Be sure to read all the terms and conditions outlined by your credit card company before borrowing a cash advance.

Home Equity Loans or HELOCs

If you are a homeowner, you can tap into the equity you’ve built in your home using a home equity loan or home equity line of credit (HELOC). A home equity loan is an installment loan where the borrower receives a lump sum payment and repays it in regular payments with interest.

A HELOC is a revolving line of credit that the borrower can draw from, and once it is repaid, continue drawing from during a specified period of time.

Recommended: Different Types Of Home Equity Loans

Business Loans

Small business loans can be used to pay for business expenses. Self-employed individuals may be able to qualify for loans from small business administration, banks, or even some business credit cards.

It is important to keep your personal and business expenses separate as a self-employed person. If you are using the money for a personal expense, however, avoid borrowing a business loan and vice versa.

The Takeaway

The challenge for self-employed individuals applying for a personal loan will generally be providing proof of income. Alternatives to traditional proof of income documents include tax or bank statements.

SoFi understands that a full-time job isn’t the only qualifier of financial stability. SoFi will also consider factors like your credit score, education, and whether you have a cosigner. Loan eligibility depends on a number of additional factors, including your financial history, career experience, and monthly income versus expenses.

Getting a personal loan when you’re self-employed doesn’t have to be a huge headache. Check out SoFi personal loans today.

FAQ

Can you get any loans if you’re self-employed with no proof of income?

It is possible to get a loan if you are self-employed, however with zero proof of income it may be challenging to gain approval for a loan. To improve your odds of approval, you may consider adding collateral to the loan or applying with a cosigner.

Are there any loans for self-employed people with bad credit?

While a strong credit history can help strengthen a loan application, it’s not impossible to qualify for a loan with bad credit. If you can show a consistent and stable income history, that could help improve your application. If that’s not enough, another option may be to add a cosigner.

Can self-employed freelance workers get personal loans?

Yes, self-employed freelance workers can qualify for a personal loan. Instead of providing W-2 documents to verify their income, they will need to provide alternatives such as tax documents or bank statements. Applicants who have been working in a specific industry as a freelancer for two years or more may be viewed more favorably by lenders. Those with a strong credit score and history may qualify for more competitive rates and terms.

If a self-employed freelancer is struggling to get approved for a personal loan they could consider adding a cosigner to help strengthen their application.

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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Although many people believe that the negotiation process ends once they have accepted a job offer, this is not the case. One of the most critical aspects of the negotiation process is negotiating your signing bonus. A signing bonus is a monetary incentive that an employer agrees to pay you. This bonus is meant to entice you to accept the job offer and is typically negotiable.

Everyone should know the nuances of negotiating a signing bonus to get the most out of your job hunt. If you are offered a signing bonus, be sure to negotiate it to get the most money possible. And even if your initial job offer doesn’t include a signing bonus, it might be worth asking for one.

Understanding Why Companies Offer a Hiring Bonus

Employers aren’t obligated to offer job candidates a hiring bonus, sometimes called a signing bonus or sign-on bonus. However, companies may choose to extend this one-time financial benefit to attract new talent, especially in a competitive hiring landscape.

This one-time signing bonus can help an employer close the gap between a candidate’s desired pay and what the company can offer. Additionally, the hiring bonus may compensate a new hire for any benefits the candidate might otherwise miss out on by changing jobs or forgoing other job offers.

Companies may also use a sign-on bonus to incentivize an employee to stay with a company for a certain period of time. If an employee quits within an agreed-upon time after accepting the position, they may be required to pay back the bonus.

💡 Recommended: What Is a Good Entry Level Salary?

How Signing Bonuses Work

If you’re being considered for a job, the hiring company can include a signing bonus as part of the job offer. You can then decide whether to accept the bonus and the position, attempt to negotiate for a larger sign-on bonus, or walk away from the offer altogether.

Should you accept the offer, the hiring bonus can be paid out to you as a lump sum or as employee stock options. If the company pays the bonus as a lump cash sum, they may pay it out with a first paycheck or after a period like 90 days.

Like any other bonuses, salary, or wages you receive, a signing bonus is taxable. So you’ll have to report that money on your tax return when you file. If the signing bonus is paid with regular pay, it’s taxed as ordinary income. If it isn’t, then the sign-on bonus is taxed as supplemental wages. For 2022, the supplemental wage tax rate is 22%, which increases to 37% if your bonus exceeds $1 million.

Additionally, bonuses, whether they’re paid when starting a new job or as a year-end bonus, may also be subject to Social Security and Medicare tax as well as state income tax. Employers withhold these taxes and pay them to the IRS for you. So when you get your bonus, you’re getting the net amount, less taxes withheld.

Average Signing Bonus

The average signing bonus can vary greatly depending on the company, position, and location. In general, signing bonuses may range from $10,000 to more than $50,000 for management and executive positions, while entry and mid-level position hiring bonuses are usually less than $10,000.

What Industries Offer the Highest Hiring Bonuses?

The industries that offer the highest hiring bonuses tend to be in the financial and technology sectors.

However, during competitive labor markets, signing bonuses may be offered in various industries that usually don’t offer a bonus. Following the Covid-19 pandemic, industries like healthcare, warehousing, and food and beverage offered substantial hiring bonuses to attract potential employees.

💡 Recommended: The Highest-Paying Jobs in Every State

Pros & Cons of Signing Bonuses

Receiving a sign-on bonus could make a job offer more attractive. But before you sign on the dotted line, it’s helpful to consider the advantages and potential disadvantages of accepting a bonus.

Signing Bonus Pros

A signing bonus could help make up a salary shortfall. If you went into salary negotiations with one number in mind, but the company offered something different, a sign-on bonus could make the compensation package more attractive. While the bonus won’t carry on past your first year of employment, it could give you a nice initial bump in pay that might persuade you to accept the position.

You may be able to use a signing bonus as leverage in job negotiations. When multiple companies make job offers, you could use a signing bonus as a bargaining chip. For instance, if Company A represents your dream employer but Company B is offering a larger bonus, you might be able to use that to persuade Company A to match or beat their offer.

A sign-on bonus could make up for benefits package gaps. Things like sick pay, vacation pay, holiday pay, insurance, and a retirement plan can all enhance an employee benefits package. But if the company you’re interviewing with doesn’t offer as many benefits as you’re hoping to get, a large sign-on bonus could make those shortcomings easier to bear.

Signing Bonus Cons

You could see a bigger tax bill in the short term if you receive a signing bonus. Since sign bonuses are taxable as supplemental wages, you might see a temporary bump in your tax liability for the year. You may want to talk to a tax professional about how you could balance that out with 401(k) or IRA contributions, deductions for student loan interest payments, and other tax breaks.

Additionally, changing jobs might mean having to repay the bonus. Employers can include a clause in your job offer that states if you leave the company within a specific time frame after hiring, you’d have to pay back your sign-on bonus. If you have to pay back a bonus and don’t have cash on hand to do so, that could lead to debt if you have to get a loan to cover the amount owed.

This might cause you to get stuck in a job you don’t love. If your employer requires you to pay back a signing bonus and six months into the job, you realize you hate it, you could be caught in a tough spot financially. Unless you have money to repay the bonus, you might have to tough it out with your employer a little longer until you can change jobs without any repayment obligation.

Reasons to Negotiate a Signing Bonus

There are several reasons it can be beneficial to negotiate a signing bonus rather than just accept whatever the employer offers. For one, a signing bonus can help offset the costs of relocating for a new job. Additionally, a signing bonus can help you maintain your current standard of living while you transition to a new city or state. Finally, a signing bonus can allow you to negotiate for other perks and benefits, such as a higher salary, stock options, or a more generous vacation policy.

When Is a Hiring Bonus Negotiated?

A hiring bonus is typically negotiated during the job offer stage after the employer has extended a job offer to the candidate. You don’t want to get ahead of yourself and ask for a hiring bonus immediately because that could hurt your chances of getting one. You generally want to wait for the hiring manager to start the conversation.

After receiving your official job offer with your projected salary and benefits, you will be able to gauge your potential bonus opportunity; one rule of thumb is that a hiring bonus is about 10% of your salary. And if the hiring manager offers you a bonus initially, you might have an advantage in negotiating for a better one.

Tips on How to Ask for a Signing Bonus

If an employer doesn’t offer a sign-on bonus, you don’t have to assume it’s off the table. It’s at least worth it to make the request since the worst that can happen is they say no.

Here are some tips on how to ask for a signing bonus:

1. Know Your Value to the Company

Before asking for more money, either with a bonus or your regular salary, get clear on what value you can bring to the company. In other words, be prepared to sell the company on why you deserve a signing bonus.

2. Choose a Specific Amount

Having a set number in mind when asking for a bonus can make negotiating easier. Do some research to learn what competitor companies are offering new hires with your skill set and experience. Then use those numbers to determine what size bonus it makes sense to ask for.

3. Make Your Case

Signing bonuses are gaining steam in industries such as technology, engineering, and nursing, where there is more competition for the best job candidates. You are also sometimes in a better position to ask for a signing bonus if the company did not meet the salary you requested when interviewing — a signing bonus is an opportunity to recoup some of that difference. Regardless, it never hurts to consider asking for more money.

Just be sure to do your research first. For instance, perhaps discreetly ask your contacts whether the company might be open to offering a signing bonus, and be sure to look at comparable salaries on Glassdoor, Indeed, and Salary.com to see how your job offer stacks up.

4. Split the Difference With Your Salary

One way to potentially have your cake and eat it, too, when it comes to signing bonuses is to use your salary to offset it. Specifically, instead of asking for a large bonus, you could ask for a smaller one while also asking for a bump in pay.

An employer may be more open to paying you an additional $2,000 a year to keep you on the payroll, for instance, versus handing out a $20,000 bonus upfront when there’s no guarantee you might stick around after the first year.

5. Get it in Writing

If a signing bonus wasn’t part of your original job offer, and you’ve negotiated for one, ensure you receive an updated contract with the bonus included.

The agreement should spell out the amount of the bonus, how it will be paid (separate check or part of your regular paycheck), and the terms of the bonus. The contract should note how long you must stay employed at the company to retain your bonus (typically one year).

How to Maximize Your Signing Bonus

After receiving a signing bonus, the next question should be: What do I do with the extra money?

There are several ways you can put a signing bonus to work. For example, if you have credit card debt, your best move might be to pay that off. This could be especially helpful if you have credit cards with high-interest rates.

You could also use a sign-on bonus to eliminate some or all of your remaining student loan debt. But if you’d rather save your bonus, you might refinance your loans and use the bonus money to grow your emergency fund. Having three to six months’ worth of living expenses saved up could be helpful in case you lose your job or get hit with an unexpected bill.

You might also consider longer-term savings goals, such as buying a car or putting money down on a home. Keeping your money in a savings account that earns a high-interest rate can help you grow your money until you’re ready to use it.

Using Your Bonus for Retirement

If you are caught up with your credit card payments and already have an emergency fund, you might consider investing your bonus.

This could be a wise financial move considering that a $5,000 signing bonus isn’t as lucrative as negotiating a $2,000 increase in your annual salary. If you can’t negotiate the higher salary, you can at least use your bonus to invest. Investing can be an excellent way to build wealth over time.

For example, you might use part of the money to open a traditional or Roth IRA. This can help you get a head start on saving for retirement and supplement any money you’re already saving in your employer’s 401(k). And you can also enjoy tax advantages by saving your bonus money in these accounts.

💡 Recommended: Should I Put My Bonus Into My 401k?

The Takeaway

There’s a lot to think about when you’re looking for a new job. You want to make sure you find a position you love that will compensate you fairly. So adding another step in the job search process may seem overwhelming. However, asking for and negotiating a signing bonus using the tips above is critical to help you get hired with the bonus you deserve.

Investing a portion of your signing bonus can allow you to take advantage of compounded interest over time. But it’s okay to start investing without much money. With a SoFi Invest® online investing account, you can trade stocks and exchange-traded funds (ETFs) with no commissions for as little as $5.

Consider asking for a signing bonus when you’re offered a new job. You can use a portion of that money to open a SoFi Invest account.

FAQ

What is a signing bonus?

A signing bonus, also known as a hiring bonus or a sign-on bonus, is a bonus given to employees when they are hired. A company will pay a signing bonus to help entice the employee to accept the job offer.

How can you negotiate your signing bonus?

To negotiate a signing bonus, you should be clear about what you are asking for, be reasonable in your request, and have a backup plan if your initial request is not met. It is also important to remember that the company you are negotiating with likely has a budget for signing bonuses, so be mindful of that when making your request.

What is the average signing bonus?

The average signing bonus depends on several factors, including the company, position, and location. In general, the average hiring bonus for managers and executives may range from $10,000 to more than $50,000. For lower-level employees, a signing bonus may be less than $10,000.

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