Navigating Personal Loans for Self-Employed: Tips to Prove Income

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If you’re self-employed and need to show your income for a loan, personal loan providers may not be willing to help. Many lenders view self-employment as a riskier proposition because there’s no fixed monthly income or direct third-party verification of earnings as an employee has. However, that doesn’t mean you can’t get personal loans if you’re self-employed. There are some things you need to know about personal loans if you’re self-employed to increase your chances of success when applying for financing.

How to prove income and build a credit score with personal loans

What is Proof of Income?

This is the requirement by a financial institution for a borrower to provide evidence of their income level for loan qualification. An institution may typically require you to fill out a ‘Proof of income document’ that details your total earnings over a specific period. 

The specific type of income documentation required is usually determined by the individual institution making the request. While all of the documents that will be listed below constitute some form of income proof, some of them are regarded as more credible than others, while some institutions may disregard some and emphasize others.  

Why Do You Need Proof of Income?

As stated above, if you are not receiving a monthly paycheck from an employer or have a very formal business that has all its books in order, it may be hard for a lender to determine how much you can afford to borrow. 

You specifically need to prove that you have an income, a regular one for that matter and that you are earning this income through legal means as well as you are making enough to cross the minimum threshold a lender requires one to have to qualify for a specific amount. 

If your income sources are verifiable, a lender can then confidently decide on your loan application. You want the lender to be not only convinced of your income earning potential but also of your ability to repay, that your income can support the amount you wish to borrow and that you are low risk enough to qualify for a low-interest rate. 

This means, however you make money, you need to have very good and traceable records that can speak for you. 

Other reasons for the importance of self-employment income documentation include:

  • Health insurance application
  • Applying for a lease
  • Renting out a house – in some estates
  • Mortgage application
  • Auto loan financing

What Counts as Proof of Income for Self-employed People?

Many self-employed individuals face the challenge of being unable to produce a standard income proof. 

This could either be due to inconsistencies in income as is the reality in the worlds of entrepreneurship and freelancing, or incompleteness in documentation when income is from multiple small sources. 

Fortunately, you can still demonstrate your ability to pay if you are consistently generating revenue, even if the amount is not the same each month.

Here are some examples of documents that you can use as self-employment income documentation;

Annual tax returns

An income tax return is irrefutable proof of your earnings for the tax year. The legal record details your annual income and is filed with the Kenya Revenue Authority (KRA).

Bank statements

On your bank statements, you should be able to see all of your customer or sales payments. To avoid having to explain your finances in great detail to lenders, consider opening a business bank account for your income. As a result, the transactions that a lender should review will become more streamlined.

Before submitting personal bank statements as proof of income, go through and specifically identify your incoming payments and business expenses.

Profit and loss statements

This statement tracks your earnings, costs, and outlays for doing business over a specific period, such as a fiscal year. These statements are more commonly produced by people who operate their businesses, but that doesn’t mean freelancers can’t keep them as well. You can look into software that will help you create the document yourself.

M-Pesa Statements 

If you are running a small business and receive payments through a merchant Till, either Lipa na Mpesa or Mpesa Paybill, a financial institution will accept a record of your mobile money activity as proof of income. This includes your savings records with mobile facilities such as M-Shwari. 

Separating your expenses on mobile money with business transactions may quickly provide a quick snapshot of how much cash flow you have monthly.

Online Cart Activity

Do you operate an online shop such as on Jumia or Amazon and the platform provides a verifiable history of transactions on your account? How about your taxi-hailing app history of ride requests and weekly payouts?

Some financial institutions will accept this history as proof of income.

How to Show Proof of Income if You Get Paid in Cash 

Even if you are paid in cash, you can still provide proof of income. You have several options, listed below:

Create your invoices. If your client does not provide you with paycheck stubs, you can still create your own. Create an invoice for each payment you receive, detailing who paid you, when they paid you, how much they paid, and the type of work you performed.

Make use of accounting software. Most bookkeeping software allows you to track cash payments. The software should record all of the information you need to prove your source of income.

Maintain an income tracking spreadsheet. If you don’t have bookkeeping software or don’t want to pay for it, you can manually track cash payments. Include who paid you, when you were paid, how much you were paid, and the nature of the work you did.

Transfer the money you get to your bank account. Any cash deposits you make to your account will be reflected on your bank statements, which you can use as proof of income. Note that this includes Sacco statements if you use a Sacco current account for your transactions. 

Make receipts for those who give you cash payments. Giving your customers receipts for cash payments is a great option. 

Present your tax returns. If you filed your tax returns correctly, they should show how much money you made the previous year. When you are paid in cash, you can use this as proof of your earnings.

Why you might be turned down for personal loans if you’re self-employed

There are a few reasons why lenders might turn down your self-employed personal loans application, including the fact that lenders have strict standards. Additionally, your loan application may not be processed in time if you wait until the last minute to apply for financing. The personal loan application and approval process often takes several weeks and is processed in a first-come, first-served manner.

Self-employed borrowers also need to demonstrate a strong credit history by having excellent credit scores and a proven ability to repay a loan on time. While most lenders consider self-employed people, lenders typically require more documentation and a higher income than they do for employees. If you’re self-employed, you may have to prove your income by having a third-party verify your earnings. Credit score reporting agencies, such as Experian, can provide information on how you can build your credit score through sources like utilities, cell phone, and internet accounts.

Can You Get a Loan if You’re Self-Employed With no Proof of Income?

Yes. However, if you have little or no proof of income, lenders may view you as a high-risk borrower. Even if you can obtain a personal loan, it may not be for a large sum, and the interest rate will most likely be high.

Other options to help you build your credit score and show your income

Some lenders that specialize in self-employed individuals will let you add a cosigner to your loan application. Cosigners are people who agree to pay the loan if you can’t. Cosigners can help you get approved for a loan even if you can’t prove your income. Cosigners also help you build your credit score because they are also listed on your credit report. Other options include applying for a smaller loan with a lender that specializes in subprime loans. Subprime lenders specialize in helping people with bad credit. You can also apply for a payday loan, which you can repay in one lump sum after you get your next paycheck.


You’ll have to prove your income with documentation when you’re self-employed and need a personal loan. Lenders often require two years of tax returns or a combination of other documentation when applying for a loan. If you don’t have a credit score, you may have to apply for a secured loan backed by collateral. An unsecured loan may provide you with a lower interest rate, but it’s more challenging to get if you don’t have a credit score. Other options exist to help you build your credit score, including adding a cosigner and applying for a smaller loan with a subprime lender.

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