Loan for the Self‑Employed – how tradespeople and freelancers obtain favourable financing

Self‑employment and freelance work — what at first glance sounds like a clear professional advantage can also bring specific hurdles. This regularly becomes apparent when it comes to granting loans for private purposes. Conventional installment loans are usually aimed at employees with secure income. Even the increasingly standardized loan processes are tailored to the needs of the most common borrowers: permanently employed individuals.
But how are self‑employed people supposed to finance private expenses such as a car or larger purchases? In this context, a loan for the self‑employed plays a very important role. It is specifically designed for the needs of the self‑employed and therefore offers attractive conditions for this professional group. But what are the particularities of this type of financing? What should applicants consider when choosing a loan and which services and conditions are truly important in the end? In our guide we show you the most important facts about loans for the self‑employed and how you can secure favourable conditions!

What is a loan for the self‑employed?

A loan for the self‑employed is, by design, a conventional installment loan. It is normally granted as an annuity loan and repaid in equal monthly instalments. The interest rate remains the same over the entire term and is fixed from the start. As is common with an annuity loan, the interest portion within each payment decreases slightly each month while the repayment portion increases. This is due to the fact that interest is only charged on the outstanding balance.
The defining feature of this financing is the focus on the target group of the self‑employed. This usually refers to tradespeople and freelancers. Because they are subject to particular financial and professional circumstances, the lending process for loans to the self‑employed is somewhat different.

Special features of loans for the self‑employed

However, the self‑employed usually have to meet certain requirements to obtain a loan. Their financial situation is much less stable than that of an employee. Therefore, banks cannot rely on fixed monthly income, as the business of a self‑employed person typically develops differently over time. In addition, the self‑employed are much more likely to encounter financial distress. Often it is enough if one or two important clients do not pay their invoices or pay them very late.
The special features of loans for the self‑employed are therefore also oriented towards this specific situation:

• Significantly higher requirements for proof of the borrower’s creditworthiness
• More critical assessment of creditworthiness
• Limitation of the loan amount to between €50,000 and €100,000 in many cases
• Frequent restriction of the purpose of use to private expenses
• Depending on the bank, sometimes worse terms than for installment loans for employees

Tip: If you still want to obtain a favourable loan for the self‑employed, you should definitely compare several offers beforehand. At MAXDA we compare numerous tailored financings for you in order to achieve the best possible conditions for your loan for the self‑employed.

Loan for the self‑employed: the requirements

Due to the special work and income situation, there are also special rules for lending when it comes to loans for the self‑employed.

Most banks (e.g. house banks) only grant loans to businesses that have already been operating successfully for a certain period. This period varies between 1 and 3 years depending on the provider. This ensures that the bank can be confident the business is viable and that the borrower is able to repay the loan for the self‑employed.

Founders (start‑ups) therefore often find it very difficult to obtain suitable financing for private purposes immediately.

When a loan for the self‑employed is applied for, the proof of income is considerably more complex than for a conventional loan.

Self‑employed applicants often have to provide the following documents:​

• Income tax assessments for the last 2–3 years
• Business management reports (BWA) to assess future business development
• Balance sheets or receipts‑surplus accounts for the last 2–3 years
• Profit and loss statements (if available) for the last 2–3 years

Furthermore, previous payment behaviour naturally plays an important role. A negative SCHUFA entry is already a knockout criterion for many banks (e.g. house banks) when granting a loan. This is even more true for self‑employed people, whose base score is often weaker due to their uncertain income situation.

At MAXDA, however, you may have the possibility to obtain a loan for the self‑employed without a SCHUFA check. We will gladly assess your personal situation and look for a suitable financing solution together with you.

Collateral for loans to the self‑employed

The chances of obtaining a loan for the self‑employed increase significantly if the applicant can provide collateral. These include, for example, real estate, life insurance policies and savings deposits. A solvent guarantor (guarantee) is also a clear plus when deciding on a loan application.

Guarantors are people who vouch for a third party with their own assets — they assume a guarantee that the borrower will actually repay the loan. If the actual borrower becomes unable to pay, the lending institution holds the guarantor liable (guarantee).
Taking out a term life insurance policy can also serve as an interesting security for a loan for the self‑employed. It steps in, for example, if the borrower dies before repaying the financing. In that case, the life insurance pays the death benefit to the survivors, who can use it to settle the loan.

Loan for the self‑employed: comparing offers

Before taking out a loan for the self‑employed, different offers should first be obtained and compared. The annual percentage rate was introduced as a comparison metric. Using this rate, not only can individual loan offers be compared directly, but the prospective borrower can also calculate how much money they will actually have to repay. A comparison offers several advantages that borrowers should definitely use:

• Improved market transparency (good and bad offers can be identified)
• Savings potential (choosing the right loan can save borrowers a lot of money)
• Finding tailored offers (services that match your own needs)

Since a loan comparison is completely free even in the area of loans for the self‑employed, there is nothing to stop you from taking a closer look at the market. Those who take advantage of these benefits will ultimately find a loan offer that is significantly cheaper than average.

Which criteria are particularly important when comparing loans for the self‑employed?

If you are interested in a loan for the self‑employed, you normally need money for private purposes. The loan should be as affordable as possible and, in addition, it is important that the financing matches your needs in terms of services. For this reason, the following criteria should be given special attention when comparing:

1. The annual percentage rate – the most important criterion

As mentioned above, the annual percentage rate is the benchmark for loans. This is because a calculation is laid down in §6 of the Price Indication Ordinance (PangV). In addition, the legislator specifies there which costs must be included in the interest rate. These include, among others:

• Brokerage costs
• Any fees for maintaining the loan account

The annual percentage rate therefore contains all costs directly associated with concluding the loan. Optional costs, such as for residual debt insurance, are not included, since these only arise if the borrower actually chooses them. To illustrate the potential savings of a loan comparison, the cost savings for a 2 percentage point interest difference are shown below as an example:

In this example, a difference of two percentage points already results in savings of over €400. Since differences on the loan market can sometimes be even larger, a loan comparison is an important tool for reducing costs for loans to the self‑employed. Our experts will help you save a lot of money by comparing loans for the self‑employed.

2. The representative example

Because the annual percentage rate in many financings depends on the borrower’s personal creditworthiness, self‑employed people should also look at the so‑called representative example. This is mandatory under §6a PangV and shows an interest rate that roughly two‑thirds of all customers receive when their creditworthiness is assessed. This helps to avoid temptation from attractive‑looking offers with seemingly very low rates that turn out to be much more expensive once personal creditworthiness is taken into account.

3. Special repayments

Free special repayments give the self‑employed borrower the option to make additional repayments in addition to the agreed instalments. These shorten the term and thus reduce the total interest costs of the financing. Today, many lenders already offer free special repayments. At MAXDA, applicants always have the option to make free special repayments and thus avoid early repayment penalties.

4. Instalment flexibility

Since financial bottlenecks can occur more frequently for the self‑employed, instalment adjustments or instalment pauses are very helpful additional services. If you anticipate such bottlenecks, you should agree on corresponding flexibilisations.
These features already provide a rough framework for a successful loan for the self‑employed. Of course, it is also possible to manually sort many loan offers according to the relevant criteria. However, if you want to save time, you can also do this in cooperation with a partner. Our experts help applicants quickly find the financing that fully suits them and is also particularly inexpensive.

Self‑employment – advantages and disadvantages at a glance

Many people dream of quitting their employee job and taking the leap into self‑employment. But what exactly are the advantages of this professional situation and what risks does working as a self‑employed person entail?

Advantages of self‑employment

The advantages of self‑employment are quite diverse and provide good reasons to give up a previous job:

• Being your own boss: As your own boss, self‑employed people and freelancers do not have to answer to anyone. They work for themselves and determine their business and work policies entirely on their own.
• Effort pays off: While overtime as an employee only pays off to a limited extent, entrepreneurs often receive significantly more money for additional effort. In many cases, income as a self‑employed person is also at a higher level because you do not have to share the returns of your work with anyone.
• Your own ideas: You can implement and try out your own ideas without first convincing superiors.

Disadvantages of self‑employment

The freedom of self‑employment unfortunately has its price. Therefore, the possible disadvantages should also be checked before taking this step:

• Higher risk: As a self‑employed person, your income depends on the current business situation. This leads to overall poorer predictability of financial steps. In addition, customer payments can fail at any time, which in turn leads to liquidity problems.
• Higher workload: Because an entrepreneur has to take care of many things in addition to the core business, the workload is significantly higher. This includes aspects such as accounting, taxes, marketing and customer acquisition.

The path to self‑employment should therefore always be carefully considered. Those who are aware of the risks and appreciate the advantages can, however, achieve great success.

Self‑employed or freelancer – what is the difference?

If you want to become self‑employed, you first need a viable concept. A vague idea of where you want to go is a good start. But this idea needs support, development and consideration, a marketing analysis and campaign. A business plan must also be prepared before founding a company.

Business start‑up centres, which can be found in all larger cities and are usually affiliated with the Chamber of Commerce (IHK) or the local university or technical college, can help with these questions. Start‑ups often also receive special loans. But before starting a business, it must also be clarified whether the planned activity will be carried out as a tradesperson (Gewerbetreibender) or as a freelancer. What exactly are the differences?
Fundamentally, all self‑employed people are initially considered tradespeople. However, the law (§18 para. 1 EStG) defines some exceptions that are considered liberal professions. These include, among others:

• Self‑employed scientific and teaching activities
• Artistic activities
• Doctors, dentists, alternative practitioners and veterinarians
• Lawyers, tax consultants, auditors and notaries
• Engineers and architects
• Journalists

The difference between the two is that tradespeople must apply for a trade licence and are subject to trade tax. They are also automatically members of the Chamber of Commerce. Finally, freelancers are not required to keep commercial accounts and can limit their accounting for tax purposes to a receipts‑surplus calculation. This significantly reduces bureaucracy and thus leaves more time for the core business.

Freelancers only need a tax number from the tax office. A freelancer registers their activity in a letter to the tax office and then receives a tax number.

Aside: Working capital loan for entrepreneurs – what to watch out for?

Of course, as a self‑employed person it can also happen that loans are needed for business purposes. The conventional loan for the self‑employed is rather intended for private financing by tradespeople and freelancers. One form of financing for entrepreneurs is the working capital loan, which can be used to finance items of current assets. These include, among others:

• Raw materials
• Goods and inventories
• Marketing and consulting costs
• Personnel costs
• Liquidity

  

But what should be considered with such financing? The most important aspect is again the interest on the financing, because it is the cost benchmark. Collateral is arranged similarly to private loans, but business assets such as equipment and machinery can also serve as security. It may also make sense to consider credit marketplaces and government promotional loans in addition to conventional bank offers. The latter option is particularly interesting for founders (start‑ups) who have difficulty obtaining a working capital loan from banks. KfW promotional products such as the ERP start‑up loan are a good alternative and, due to the generous liability assumption by the KfW (Kreditanstalt für Wiederaufbau), are also an attractive business for banks as lenders without excessive default risk.

Questions about loans for the self‑employed

When self‑employed people want to take out a loan, there are a number of things they must consider. The following answers important questions about loans for the self‑employed.

Aside: Spelling: selbstständig or selbständig?

If you search for a loan for the self‑employed you will find results in different spellings. The word „selbständig“ can also be written „selbstständig“ today. The background is as follows:

• Old orthography: Under the old orthography only the variant „selbständig“ was permitted. This is mainly because the word does not come from „selbst“ and „ständig“, but from the word „selbstand“. This roughly means person. The Late Middle High German variant „selbstende“ means „existing for itself“.
• New orthography: Since the old ancestral words are no longer used today, the new orthography introduced the option to write the variant „selbstständig“. Thus people are free to spell the word either according to its old origin or as it is actually spoken.

In principle, neither variant is wrong. Interested parties can therefore apply for both a loan for the „selbstständige“ and a loan for the „selbständige“.

How long does it take until the loan is approved – when is the money available?

If you decide to take out a loan for the self‑employed, you can generally expect the money relatively quickly. Only the following steps are required:

1. Fill out the loan application form

The first step is to submit a loan enquiry. The borrower already indicates the desired loan amount and provides some personal data (date of birth, name, address). In addition, some information about income and rental expenses must be provided.

2. Complete and substantiate the information

After the loan enquiry, applicants receive an email with further information about the required data and documents. These include, for example, payslips or a pension notice. For the self‑employed, among other things, income tax assessments for previous years are required.

3. Checking the documents and clarifying the options

After reviewing all information and documents, the MAXDA experts contact the borrower and clarify the possibilities based on the provided information. We compare numerous loan offers and select loans that are particularly suitable for the applicant and also very favourable.

4. Fill out and send the loan contract

Once a suitable bank has been found, the loan agreement must be completed and signed. Together with our experts, self‑employed borrowers can complete this step, which is usually carried out together with identification via the PostIdent or VideoIdent procedure.

5. Expect the money

Depending on the bank, a disbursement can take 3–5 days after submission of the loan agreement. This also depends on the speed of the transfer process.
If you submit all documents quickly and also send the loan agreement to the bank as quickly as possible, you can significantly shorten the time until disbursement. A loan approval is usually possible on the day of the loan enquiry.

How high are the fees for loans for the self‑employed?

Fees for a loan for the self‑employed vary depending on the bank and intermediary. For a loan enquiry with MAXDA, applicants do not have to pay any fees, for example. Due to legal regulations, it is easy to compare the fees of different lenders. They must be included in the annual percentage rate. So if you use a loan comparison and choose a cheap loan with the lowest possible annual percentage rate, you will also pay particularly low fees.

What requirements must the self‑employed meet to get a loan from a bank?

Because freelancers and tradespeople do not have fixed predictable income, they usually have a lower credit score. This places special demands on proof of creditworthiness. When a bank lends money, it always assumes a risk. A borrower’s creditworthiness indicates to what extent they are able to meet the financial obligations of the loan agreement. The bank considers the following data:

• Regular income minus regular expenses
• Previous payment behaviour (SCHUFA score)
• Collateral (assets)
• Other liabilities (debts)

The regular income of a self‑employed person cannot be precisely quantified and can fluctuate significantly. For this reason, lenders apply risk discounts to obtain reliable figures. They rely on the long‑term development of income. Self‑employed borrowers must therefore provide special documents:

• Income tax assessments: Based on the income tax assessments for the last 2–3 years, banks can see how the business has developed and how the profit situation has looked over a longer period. This is not a guarantee for future development, but it is an indication of the sustainability of a business model.
• Business management reports (BWA): A BWA provides further information as it supplies important business figures about earnings and liquidity. It also gives banks insight into cost structures.

Depending on the legal form, annual financial statements (balance sheets and profit and loss accounts) may also have to be submitted. Based on this information, lenders can assess whether the earnings situation will allow the loan instalments to be serviced in the long term.
From the above information, the following aspects emerge as requirements for a loan for the self‑employed:

1. Good earnings situation and business existence

The entrepreneur’s business should already be “past the worst” and ensure a certain positive earnings situation. This presupposes that the business has already existed for a few years (1–3 years, depending on the bank). If the applicant is financially able to meet the loan instalments in addition to all other obligations and after appropriate risk discounts, there is nothing to prevent a loan being granted.

2. Positive SCHUFA information

As a rule, the applicant’s SCHUFA information should not show negative entries, as this is a basic requirement for many banks when granting loans. Nevertheless, in individual cases it is possible to obtain a loan for the self‑employed without a SCHUFA check. Most lenders will then require further collateral.

How can self‑employed people and freelancers increase their chances of getting a loan?

If a self‑employed person has submitted all necessary documents on the earnings and liquidity situation of the business, they can further increase their chances of a loan with additional collateral. These include, among others:

• Land charges on real estate: It is possible to offer a land charge such as a mortgage on your own property to the bank. The mortgage allows the lender, in the event of sustained payment default, to foreclose the property to satisfy its claims. This form of security requires notarisation and entry in the land register and is therefore realistic only for larger loan amounts. The costs for the notary and the land registry must also be taken into account.
• Guarantee: A guarantor can also significantly increase the credit chances of the self‑employed. However, the guarantor’s creditworthiness matters here. A guarantor typically assumes liability as a joint and several debtor and stands with their assets as security for the borrower’s debts.
• Second borrower: In many cases, for example, spouses take out a loan together so that the burden of collateral is shared. The chance of obtaining a loan for the self‑employed increases only if the other borrower also has income and corresponding creditworthiness.

A life insurance policy is only an additional security for very long‑term loans and can increase the credit chances for older borrowers. It pays out in the event of the borrower’s death and gives survivors the option to repay the loan in one go.

Why do banks reject a loan application from the self‑employed?

A loan application always carries the risk of rejection. But why do banks turn down loan enquiries? For loans to the self‑employed, the possible reasons are a mix of common causes and those specific to this type of loan:

• Negative SCHUFA entry (as with other loans)
• Insufficient income (as with other loans)
• Business has not existed long enough (specific to loans for the self‑employed)
• Important documents such as the BWA are not available (specific to loans for the self‑employed)

With regard to income, self‑employed people often have to meet significantly higher thresholds with many lenders because their income fluctuates.

Is the loan amount limited?

The available loan amount is usually determined by several factors:

1. Balance of income and expenses

Banks first look at an applicant’s income and expenses. Since income for a self‑employed person is not constant, certain risk discounts are applied and offset against fixed expenses (for small loans as a household allowance). The resulting amount is often further reduced by certain safety reserves.

2. Other debts

If you want to apply for a loan for the self‑employed, you must also indicate whether you already have other debts for which you pay interest. These are included in the assessment of creditworthiness and can reduce the possible loan amount.

3. Possible collateral

If a borrower can provide collateral such as a guarantor, assets or real estate, this can have a positive effect on the possible loan amount.
In general, the desired loan amount determines whether it can be granted. Small financings are usually not a problem, whereas self‑employed people and freelancers may encounter problems with mortgage financing.

How high are the interest rates for loans for the self‑employed?

The interest rate of a financing depends to some extent on the type of loan, but this is by no means the only criterion. For loans to the self‑employed, interest rates are generally somewhat higher than for conventional installment loans, regardless of other factors. This is due to the uncertainty of freelancers’ and self‑employed people’s income. In addition, the following points play an important role:

1. The individual lender

Banks can set their loan conditions freely and are therefore focused on maximising profit. For this reason, interest rates for loans to the self‑employed can vary considerably between banks. This makes comparing different lenders very important, as there is considerable savings potential. For this reason, after your loan enquiry MAXDA already compares the terms of many providers and offers you loans with particularly favourable interest rates.

2. Personal creditworthiness

Another important criterion for the annual percentage rate of a financing is the borrower’s personal creditworthiness. This represents the probability of default of a loan and quantifies the risk for the lending bank. Creditworthiness is influenced by both a borrower’s income and their past payment behaviour. Almost all banks today use scoring systems to quantify creditworthiness. The better the borrower’s score, the more favourable the interest rates they can obtain.

A loan for the self‑employed does not have to be expensive

Self‑employed people are entrepreneurs in their professional life but still sometimes need private financing just like employees. Very common reasons include buying a car, financing repairs or important replacement purchases. Because there are some uncertainties regarding income, lending to tradespeople and freelancers is significantly more difficult. However, if you provide the required documents and compare offers, you can ultimately realise attractive conditions for your loan for the self‑employed.