There are many perks to being an independent contractor. Many have the freedom to make their own work hours, select projects that are most appealing to them and manage operations without a ton of input. Still, some face a major downside – financial issues that come with being an independent contractor. Fortunately, loan options are available to help you overcome the challenge if you encounter cash flow issues.
Read on for more insight into who’s considered an independent contractor, common financial woes they face, and where to find viable loan options to keep operations running smoothly.
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Who Is Considered as an Independent Contractor?
Independent contractors are non-employees or contract workers who perform work for companies. But, instead of receiving hourly or salary pay and benefits, compensation is granted by the project or based on a set number of hours they agree to work on a weekly or monthly basis.
When it’s time to file taxes, independent contractors receive a 1099 from the company, including total earnings for the year (assuming they earned more than $600). Since the employer does not withhold taxes from these payments, the independent contractor must pay their own taxes to the Internal Revenue Service (IRS) and their state tax authority (if applicable).
Independent Contractors vs. Self-Employed Individuals
Independent contractors and sole proprietors are considered self-employed people since they aren’t technically employees. However, self-employed individuals aren’t always classified as independent contractors since they don’t have to be hired by a company to generate income. This scenario is quite common for individuals operating eCommerce businesses or selling their products through consignment arrangements.
Financial Issues of Independent Contractors
It’s not uncommon for employees to transition to self-employment to enjoy the perks that are afforded to independent contractors. However, there are also financial drawbacks to consider.
Income Is Not Guaranteed
When you’re hired as an hourly or salaried employee, you’re guaranteed to receive compensation for a set amount each week, biweekly or monthly. Unfortunately, independent contractors don’t have this luxury, as pay is based on the work they perform. Earnings could also fluctuate from month to month, depending on their client’s needs, the state of the industry they work in, and economic conditions. Consequently, independent contractors are more likely to face cash flow challenges than traditional employees.
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Business Expenses Out of Own Pockets
Independent contractors are also responsible for covering all their business expenses out of pocket. There’s no health insurance subsidy, and if you need office space, supplies, or other materials, it’s up to you to figure out how to cover the costs. While you can pass the expenses you incur on to your clients, you’ll have to front the funds until you complete the project or meet the preset milestone, and they compensate you for your work.
Lack Of Benefits
As mentioned above, independent contractors aren’t eligible for employee benefits, like retirement contributions, health insurance, dental coverage, sick leave, and vacation leave, just to name a few. It’s up to you to budget earnings wisely to ensure you can afford to pay health insurance and dental insurance premiums, take off as needed, and retire comfortably.
Companies use independent contractors as needed, and there’s no way to know if they’ll have work for you over an extended period. Furthermore, companies have the legal right to cancel a contract at any time as long as the conditions of the agreement are met.
Can Independent Contractors Get Loans?
Yes, it’s possible to get loans as an independent contractor, whether it’s to fill funding gaps or make the necessary investments to earn more.
How Can Independent Contractors Get Loans?
Independent contractors can secure loans through SBA-approved lenders, traditional banks, credit unions, and online lenders. Each lender has its own qualification criteria, but you could find that online options are generally more flexible.
Where Can Independent Contractors Get Loans?
It can be overwhelming to find a financial institution with the perfect loan product if you’re an independent contractor. Fortunately, an online lending marketplace like National Business Capital takes the stress and guesswork out of searching for suitable capital options.
Consider using the online platform to determine your eligibility for funding programs from over 75 lenders with a single application. See the following information for available funding options:
- Small business loans: available to small business owners that have been in business for at least a year, $10,000 or more in monthly revenue or self-employment income, and a credit score of 580 or higher
- Business lines of credit: this loan product boasts a 90 percent approval rate, and you could get approved and funded for a revolving line between $25,000 and $5 million in just 24 to 48 hours
- Small Business Administration (SBA) loans: could be a good fit for prospective borrowers who’ve been in business for two or more years, earn $100,000 or more in gross income or annual sales, and have a credit score of 685 or higher (Note: Express funding is also available for loans $350,000 or lower, and interest rates are competitive)
- Equipment financing: new business owners with a credit score of at least 650 are eligible, regardless of the amount of time in business. Alternatively, there’s no minimum credit score requirement for those who have been in business for six months or more and earn $120,000 in annual gross sales
To learn more, visit the website to start a simple online loan application. If there’s a match, you’ll be presented with loan quotes. Even better, the application process is simple and won’t hurt your credit score.