How do the terms of business loans vary for self-employed individuals?

The terms of business loans for self-employed individuals can vary based on factors such as the type of loan, loan provider policies, the applicant’s financial history, and the purpose of the loan. Here are the typical variations in loan terms:

• The type of loan product itself: Working capital loans meant to bridge short-term needs will usually have lower amounts and shorter repayment periods compared to long-term funding solutions like term loans that have larger ticket sizes and longer tenures. Similarly, secured loans allow access to larger amounts with better terms compared to unsecured loans.
• The financial standing and credit history of the applicant: Self-employed individuals with longer operating history, stable earning patterns and high personal credit scores will be perceived as lower risk and hence get access to cheaper interest rates and more flexible repayment options. Newer professions may face more stringent terms.
• The end-use of the loans: Loans taken for business expansion or asset purchases may attract larger amounts and longer tenures than loans for managing operating expenses, which may have shorter loan tenures.
• Loan provider's specific policies: Each financial institution may have specific filters for applicant profile, loan amount, margins, sector-focused lending, etc., which impacts the terms offered. It is advisable to compare offerings across different financial institutions.
• Overall macroeconomic landscape: In times of tight liquidity or when interest rates are high, the loan providers may reduce their risk-taking ability, which would reflect in the rigour of the underwriting policies.