➥ Uber and Lyft drivers may qualify for financing depending on the size of their qualifications, such as their credit rating, number of years the business is operating, and the type of loan they are applying for.
➥ The absence of a financial statement may be a hindrance for many Uber and Lyft drivers because lenders will need proof that they are worth the investment.
➥ Drivers may choose to use collateral to reduce the lender’s risk of loan defaults. However, keep in mind that the value of the collateral should at least be equal to the amount of money they are applying for.
➥ Uber and Lyft drivers may use their cars as collateral when applying for a line of credit. In some cases, they may need to hire an appraiser to verify the true value of the asset.
Becoming an Uber or Lyft driver is a great way to pay recurring monthly bills. Drivers can make their own schedule, either working full-time or part-time to supplement an existing income stream. That said, the job can also come with big expenses – things like car repairs or replacements. In such instances, drivers may need to apply for a loan. In this article, we’ll discuss what financing solutions Uber and Lyft drivers can qualify for.
Why Uber and Lyft Drivers Need Financing
Applying for Uber and Lyft financing solutions comes with tremendous benefits – from keeping up with expenses to owning additional vehicles. Here are the most important reasons why drivers need more funds.
Keep Up Car Expenses
While being an Uber and Lyft driver offers great financial benefits, the job doesn’t come without expenses. Owning or renting a car to use for these ridesharing apps can be expensive, especially when you factor in the cost of maintenance, upgrades, accessories, tolls and gas, parking fees, and more.
Purchase Your Own Car or Get a New One
Getting loans and other alternative funding solutions can help Uber and Lyft drivers own the car they want, not as a liability but as an asset. This allows them to have more income streams without sacrificing the money they have in their bank accounts. They can also avoid the hefty costs of upfront payments while generating more money.
Have Funds for Emergencies
Uber and Lyft drivers can use outside financing to create an emergency fund, keeping the money in their bank account to use as needed – i.e. if their car malfunctions or an expensive part needs to be replaced.
Refinance or Consolidate Debts
A common strategy to pay-off outstanding loans is to consolidate them and pay them off through one financing solution. Debt refinancing is an ideal solution to help borrowers pay the full amount of the loans they’ve accumulated in the past and pay one loan monthly. This is beneficial to ridesharing drivers who have balances with interest rates. Plus, it can help improve their credit score by letting them avoid missing a payment.
How Rideshare Drivers Can Get a Loan
Normally, Uber and Lyft drivers would get a loan from banks and other traditional lenders like credit unions. The challenge here is that these lenders have strict application requirements that most drivers can’t suffice. For example, poor credit history, employment status, debt-to-income ratio, and income sources are some of the things lenders look at when assessing the driver’s application.
There’s also the unpredictable nature of the industry. For example, the pandemic has taken a toll on ridesharing. Particularly during the lockdown, people weren’t able to travel. Even in 2021 as the lockdown was lifted, many workers who would normally take an Uber or Lyft to work are still working from home, eliminating that need.
When money is tight, there are available financing options for Uber and Lyft drivers that are much easier to apply for. While rideshare drivers find it difficult to access small business loans from banks with the nature of their income, they can get financing options that work just the same.
Financing Options for Uber and Lyft Drivers
Instead of resorting to quick cash loans or payday loans that come with high-interest rates and fees, here we’ve listed the different alternative funds drivers can apply for.
Independent contractors and self-employed individuals are considered as small business owners as long as they report their self-employment income to the Internal Revenue Service. Since that’s the case, borrowers will need to provide documents that make the lender feel comfortable about lending them money.
If credit rating is a roadblock for the borrower, they can opt for cash advances. A business cash advance is not a loan, but a calculated amount that’s based on the borrower’s future earnings.
Why is a business cash advance a good option for drivers with poor credit rating, you ask? It’s because getting a cash advance from alternative business loan lenders won’t require them to submit their credit history. That means that regardless of their credit rating, they may get cash approved for a business cash advance in as early as 24 hours. Plus, a cash advance offers flexible payment terms that drivers can afford.
Term loans are usually offered to stable businesses with sound financial statements. It’s a great financing option for Uber and Lyft drivers who have established themselves as a small business owner.
With a term loan, borrowers pay a down payment, which is deducted from the total cost of the loan. In turn, the borrower receives a lump sum of cash up front, which they can pay on an agreed upon repayment schedule. Repayment periods for business term loans may range between a few months to ten years, depending on the structure of the business, the borrower’s credit rating, length of time in business, business trade history, and the purpose for taking out a term loan.
Terms loans usually come with fixed interest rates, so the borrower won’t have to worry about the amount they have to pay monthly. To enjoy longer terms and lower rates, the borrowing business must use collateral. Collaterals offer security to the lender that they will get something in return in case the loan defaults.
Can I use my car as collateral?
Yes, Uber and Lyft drivers who will opt for a business term loan may use their cars as collateral. Any tangible hard asset–such as real estate, equipment, invoices, and inventory–may be used to collateralize your loan. However, you may need to hire an appraiser to verify the true value of your asset before the lender makes a decision.
In a typical setup, the borrower should provide collateral that’s as valuable as the loan amount they are seeking. Some stricter lenders may even require the borrower’s collateral to cost higher than the amount they’re applying for to reduce their risk.
Lines of Credit
Sometimes the borrower doesn’t necessarily need to take out a loan, but he or she doesn’t have enough money should an emergency arise. This is where a line of credit comes in handy as it gives drivers a cushion of sufficient funds to pay for such instances like repairs, insurance, road accidents, or annual maintenance costs.
The American Automobile Association (AAA) evaluates the average annual cost of car ownership. Here’s a breakdown of the costs, as published on their site:
- Fuel costs rose to 11.6 cents per mile, up about half a cent from the previous year.
- Maintenance, repair and tire costs climbed to 8.94 cents per mile, up by .73 cents.
- The annual average insurance costs climbed to $1,194 per year, which is a $5 increase.
- Licensing, registration and taxes rose to $753 per year, up by $14.
That said, a line of credit may be beneficial to small business owners who own several cars for ridesharing. By nature, a business line of credit is a revolving fund the borrowers can use anytime they need it. They can withdraw funds from their account and pay back with interest what they’ve used.
As long as the borrower repays the money they’ve taken from the credit line plus interest, the available amount goes back up. If the borrower doesn’t take out funds, no interest charges will be incurred to the borrower.
Compared with a cash advance, getting a business line of credit will require you to submit your complete credit history, financial statements, the business’ annual revenue and cash flow.
Standard Documents Needed When Applying for Uber and Lyft Financing
The documents you need to submit will depend on your (the borrower) qualifications and the lender you will be working with. As a standard, here are the documents you need to prepare beforehand:
- Driver’s license
- Personal History and Financial Statements
- Projected Business Financial Statements
- Profit and Loss Statements
- Business License/Certificate
- Ownership Documents
- Personal Resume
- Business Overview
- Income Tax Returns
Why Uber and Lyft Drivers Trust SMB Compass
With SMB Compass’ flexible financing options for Uber and Lyft drivers, borrowers can get new wheels or upgrade to better ones that support their ridesharing and delivery services.
SMB Compass is dedicated to helping clients start and grow their ridesharing business. Compared with other lending institutions, we provide clients with priority services that go beyond financing.
Our financing options for Uber and Lyft drivers are affordable and easy to qualify for so they can hit the road sooner. We’ll discuss their goals and provide them with the right strategies for long-term growth.
At SMB Compass, we give Uber and Lyft drivers the leverage to accelerate their business through competitive financing that’s designed for them.