How To Get A Bank Loan Approval When You’re A Freelancer

How To Get A Bank Loan Approval When You're A Freelancer

Freelancing is on the rise in the Philippines.

It’s not a surprise actually. With the pandemic and the need to stay isolated to avoid getting sick, the idea of working from home is more prominent than ever.

Not only that, people are attracted to the competitive compensation that you can get. You also get to work at your own pace and in the comforts of your own home.

What used to be a side gig is now a primary source of income for a lot of professionals in the Philippines.

But wait. Freelancing also has a disadvantage.

It’s hard to get a bank loan approval as a freelancer

If you want to get a housing loan, car loan, or even a personal loan, you’ll find it harder to do so when you’re categorized as self-employed.

There are many nuances why this is the case. But the bottom line is, it’s harder for banks to prove that you can afford to pay them back.

When you’re a corporate employee, the bank will simply look at your payslip, certificate of employment, and Income Tax Return – among others. Through these documents, they can easily prove that you can pay your loans.

As a freelancer, you don’t have some of the documents that the banks need to give you a bank loan approval. Banks will always take into consideration the stability of a borrower’s income.  Even if a freelancer is earning more, bank loan assessors will tag you as a high credit risk.

Why? Because your income is volatile. Sure, you may have a contract now. But what about next month? Next year? Banks would be concerned about this.

But don’t despair. While it may be hard, it’s not impossible to get a bank loan. This is a huge roadblock – but it’s not an insurmountable one.

How to improve your chances to get a bank loan approval

Here are tips that will increase your chances to get approved for a bank loan.

File your Income Tax Return

ITR is a common document that is used by bank loan assessors. You need to be registered as a self-employed professional with the Bureau of Internal Revenue. Freelancers don’t have payslips so there is no way of showing how much you earn. This document will serve as the official proof of how much you earn in a year. 

Register your Online Business

Another way to improve your chances of a bank loan approval is by registering your online business. If you have an online business or you hire people for commissioned work, then you must register with the Department of Trade and Industry (DTI). This document will further boost your chances by proving your source of income.

Have a Good Credit Score

A credit score isn’t a well-known topic here in the Philippines. But this is like the measurement of how creditworthy you are. If you have a low credit score, that means you have a bad credit reputation. You either have a history of making late credit payments or not paying them at all. That makes you a high-risk borrower.

A good credit score means you have a history of paying your dues on time. It signifies that you’re a low-risk borrower. Banks would feel more confident about giving you a loan.

How will you know what your credit score is? The best way to do that is to get in touch with the Credit Information Corporation. Request a CIC credit report. Just visit their website and choose the option to get the report.

Establish a great Bank & Borrower relationship

If you really want to get a loan, here’s my suggestion.

Apply from a Bank where you have a long-standing relationship.

What does that mean?

Get a loan from the bank where you have an active savings account or credit card account. Talk to the bank manager and tell them about your situation. Ask for their advice to increase your chances of getting approval.

Prepare other Supporting Documents

Always remember that you will be assessed on your capacity to pay back your loan.  You have to assure the bank that you can pay it back. They may ask for collateral or assets that you have in possession. These documents may come in handy in proving your credibility to pay.

  1. Bank Statements
  2. Assets under your Name (Car, House, Land, etc.)
  3. Life Insurance Policies
  4. Certificate of Earning (for Freelancers using Upwork)
  5. Billing Statements

Are you ready to apply for a loan?

Admittedly, getting loan approval is challenging for freelancers. But again, it’s not impossible.

Just be patient and go through all the tips in this article. Build your credit reputation by paying your dues on time – even your utility bills.

Having a good credit reputation doesn’t happen overnight. So if you want to apply for a home loan or car loan in the future, it’s best to get started now.

Good luck!

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