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First things first: there are multiple different types of non traditional work that fall under the general banner of the gig economy. Although some of these terms are used interchangeably, it's important to know the distinctions, as they can potentially have varying tax and accounting requirements.
Workers in the arts, entertainment and recreation are more likely to be gig workers, while workers in management, technical industries and business are more likely to be freelancers.
It's important to understand the myriad of differences between permanent employment and the different types of self-employment. It's not just a case of paychecks - the self-employed also don't have access to extended healthcare benefits, vacation time, sick leave, pension contributions, or infrastructure support. This means that as a freelancer, you can potentially face unstable income, high set up costs, and the consequences of a lack of benefits. Emergencies and unexpected costs have the power to completely derail a self-employed person's finances.
Unfortunately, this potential for instability does not go unnoticed by banks and other lenders. It is notoriously difficult to get traditional financial help, of any kind, without pay stubs and the promise of a steady income. Freelancers are considered high risk, as if you fall sick or simply are unable to find enough work, the lender is left holding the bag. And most freelancers and gig workers do not qualify for business loans in the way that an established small enterprise does.Thankfully, online and non traditional lenders are stepping into this void to help freelancers via personal loans that are easier to qualify for, have a faster application and approval process, and less restrictive terms. The offset of these benefits is that interest rates are generally a little higher than if you were able to qualify for a business loan.
Personal financing for freelancers and gig workers comes in many forms, including:Personal loans, which can extend up to $50,000 and may be acquired from many non-traditional lenders.
Microloans, which usually range from $5000 to $10000; because of their small size, they are easier to qualify for and may have lower rates than other loan types.
Lines of credit, which work in a similar fashion to credit cards, and mean that you don't need to know the exact sum you're borrowing, and you only pay interest on what you use.
Crowdfunding, which relies on finding multiple small donors, backers or sponsors for your business venture. You don't have to pay these people back, but some people require a reward of some kind for supporting you. Invoice financing, applies to those freelancers who have a regular stream of invoices. It works by using your unpaid invoices as collateral against a loan.There are many varied uses for personal financing, relating to both business costs and personal costs, including:
Getting a personal loan need not be an onerous process. Online lenders (and even some traditional lenders) offer online loan applications, so you can do your research and apply for a personal loan quickly and conveniently. These lenders also list their rates and eligibility requirements online, so you won't waste time applying to a company you won't be able or want to use.
Generally speaking, most lenders require you to be a Canadian resident and to meet certain credit score requirements. To apply for a loan, you will need your personal information, identification, information of existing debts, information on any assets you may be able to use as collateral, and income information. With all of this you can fill in an application and receive word surprisingly quickly on your loan approval status.
Money management is a key aspect of successful self-employment. Here are some tips to help ensure you stay on top of your finances:1. Create a budget for startup costs and stick to it! Be conservative - you might not know exactly what you’ll need right away, and you don’t want to waste money on useless resources.
Make a monthly budget for business-related expenses, and another for personal expenses, and keep them separate. Separate bank accounts can help facilitate this.
Build an emergency fund as quickly as practically possible; this will help shield you in the event of unforeseen circumstances or if work takes a downturn.4. Talk to an accountant about how to minimize your tax footprint. These professionals do not cost much to consult with, and will be able to advise you on what you can claim as a business expense. They will also advise you on your expected tax bill for the coming year, so you can start saving for it ahead of time.
Don't forget that you get paid a gross income! Keep track of your time! Time is money to a freelancer, so know your deadlines, have a time estimate for all of your work before you start it, and then track your actual time spent. This will allow you to become more efficient, and will also prevent stacking important deadlines for multiple clients.
