Freelance work has several pros and cons. For many, the often flexible schedule is one of the most attractive things about freelancing. Freelancers can frequently work from anywhere, at any time, and even while travelling. Of course, there are a number of downsides to this kind of life. Most freelancers do not have regular wages, vacation time, or health insurance through their employers. They also may encounter sudden, unexpected expenses that cut into their bill-paying funds.
Loans can alleviate the pressure and help freelancers achieve some degree of stability. Read ahead to understand how freelancers can leverage loans through strategic utilisation for growth and stability. We will also delve into the freelancing industry and understand its dynamics. Freelancers face several challenges in their quest for growth and stability.
There may be times when freelancers are inundated with work, with slack periods at others. There is a drastic fluctuation during the busy times versus slow periods. Irregular incomes can disrupt cash flow from one month to another.
In most cases, freelancers do not receive benefits as they are not on any company payroll. They have to handle additional costs like health insurance and plans for retirement. Apart from this, they don’t receive any paid leave during the year. Due to the absence of these benefits, they need to budget for these expenses.
Considering the above factors, freelancers need to meticulously plan their finances, and loans can serve as a boon if planned strategically.
Freelancers have several borrowing options available. We have listed a few common types.
Personal loans can be obtained by freelancers with relative ease. They require minimal formalities and can be made available quickly. Since there is no need for collateral, personal loans are helpful for freelancers.
Personal loans can be used for any purpose and are not restricted to business expenses. They generally involve fewer formalities, and funds can be accessed quickly. Personal loans offer lower interest rates when compared to credit cards.
Some freelancers establish small businesses rather than work solo. Business loans would be a good option for such entities and help with capital for growth or to cover income gaps. These loans usually involve substantial compliance but offer much larger amounts. Business loans can be used to purchase new equipment, invest in office space, or hire talent.
A credit line offers a flexible borrowing schedule where freelancers can withdraw funds when required. The withdrawal limit is capped and is especially useful to help manage cash-flow issues. Freelancers must pay interest on the amount borrowed and not the entire limit. It can be used repeatedly and as required, provided the credit line is open.
Peer-to-peer lending is achieved by connecting borrowers directly with lenders through a digital platform. Since such a platform allows freelancers to reach out to multiple lenders, they are capable of negotiating terms that best suit their needs. Similarly, due to an abundance of lender availability, borrowers are able to achieve lower interest rates on such platforms. The following are some of the ways freelancers can make use of loans to leverage growth and stability.
When there is a shortage of work, a freelancer’s income suffers a big hit. A personal loan in such times helps freelancers manage living expenses: rent, groceries, or utilities. This would keep them stable and focused on their efforts aimed at securing newer clients or businesses. In this way, personal loans would provide freelancers with much-needed respite so that they could focus on alleviating the situation.
Freelancers need to stay relevant and upgrade their skills regularly. Freelancers can utilise loans to pay for courses, workshops or certifications that would suit them best. Skilled freelancers can cater to premium clients or simply charge a higher fee.
Building a regular flow of work would involve acquiring new clients. The best way to achieve this is by investing in marketing. Marketing helps potential clients become aware of your skills and services, and you can convert them into tangible business. Freelancers can use loans to invest in various marketing initiatives like a website, Google Ads, or even hiring a marketing professional. These investments have the potential to generate new business and clients, thus creating a stable income over time.
Equipment and tools are integral to support and boost productivity. Whether it’s a new computer, accounting software or crucial equipment, freelancers can leverage loans for these purchases. Sometimes, it can be difficult to set aside large amounts for one-shot payments. Hence, loans can help ease the pressure. The right equipment and tools can help improve quality and turn-around times, creating more happy customers. Satisfied clients can yield repeat business or referrals.
Some freelancers who operate small businesses can use loans to build a team. Being a one-man army can only get you so far. A freelancer with a steady workflow can scale his/her business by leveraging a loan. He can use the funding to hire additional team members. For example, if a freelancer has undertaken a massive project and requires additional hands but lacks the capital to pay upfront, a loan would be the ideal solution.
Freelancers have a particularly hard time managing cash flow. While it is still easier to manage early on, cash flow becomes a real challenge when scale comes into the picture. Scaling your freelance business would require a bigger team, equipment or various other resources. Since work can be sporadic at times, income flow is the first to be affected. It makes sense for freelancers to leverage loans to mitigate risk and help manage their cash flow.
The reasonable and strategic use of loans can help freelancers embrace stability while also bolstering sustained growth. While loans are not a one-shot cure to all challenges, they can indeed help freelancers in several ways. Freelancers can not only use loans for better cash management but also to expedite growth and development.