Being self-employed can be wonderfully liberating. You can choose when you work, who you work with, and how often you work. Most self-employed individuals quickly learn, though, that there is no such thing as a weekend, 9-5 hours aren't always possible, and in some cases, you work harder than you ever have before. But - most will also agree that it’s totally worth it. Where being self-employed can get difficult, though, is when it comes to qualifying for a loan or EI. While the process is not as simple as it was when you worked for someone else, it certainly isn’t impossible. Here’s some important information on how to apply for EI and how to get that loan you need.
The Ins and Outs of EI
Until recently, self-employed individuals did not have access to Employment Insurance or EI as it is commonly called. Fortunately, that's changed - now, if you are working, whether it’s for you or someone else, you'll have access to EI.
There are 4 types of EI benefits:
- Maternity benefits
- Parental benefits
- Sickness benefits
- Compassionate care benefits
How EI is calculated
According to Revenue Canada, for every $100 you earn, you will be asked to contribute $1.83 in EI premiums – up to a maximum, of course. This is the exact same amount that a regularly employed individual pays. For 2012, the most you will pay in premiums is $893.97.
Calculated by CRA, EI premiums are based on your self-employed earnings. Because you are self-employed, you will not have to pay the employer’s portion of EI, as you do in the regular program.
For your first year of participation (the EI program is voluntary for self-employed individuals), you will have to pay your premiums by April 30 of the following year. After that, you can pay in installments if you wish. Regardless of when you register, you will be required to pay for the entire year, even if you register at the end of it.
How Much Am I Entitled To?
As a self-employed individual, you are entitled to 55% of your “average weekly earnings,” taken from the previous calendar year, up to a maximum of $485 per week. If you choose to work while you are collecting benefits, though, that amount will decrease. Your eligible earnings will need to be calculated before your weekly benefits can be determined. If you are both employed and self-employed, you can choose to apply for EI benefits as either one. Know, though, that if you choose to apply as a self-employed individual, your earnings from both places of employment will be considered.
Can I Apply For A Loan?
In 2010, there were some 2.7 million self-employed individuals in the workforce. That’s 16% of the working population! Imagine if these individuals didn’t have access to the same financial services as regularly employed people do – most of them would likely choose employment over self-employment. The fact is; self-employed individuals can access mortgages and loans, although a little more work is required.
It’s not so much that you’re self-employed that poses the problem, but more so that you lack the proof of income in the form of tax records. To get a mortgage, most lenders will ask you to do one of two things; you will be asked to either "declare" your income or "state" it. Declared income is a provable income. Depending on how long you have been self-employed, you may be able to state your income, though, which is to state a number without proof.
Quite a few banks and mortgage lenders now offer loans specifically designed for self-employed individuals. To prove that you are a viable candidate for the loan, it is recommended that you have a healthy amount of money in your savings account - it may increase your chances of qualifying. Make sure that your personal taxes are up-to-date and filed on time. Also, they should be paid in full. Keeping a clean credit repayment history is also important. It demonstrates to lenders that you are reliable and serious. Click here for more info on qualifying for a mortgage when self-employed.
It Pays To Be Prepared
In short, EI and loans are within reach for the self-employed. You just need to be prepared ahead of time. The EI program is voluntary and requires at least a one-year commitment. Seeing as lenders require at least two years of stated or declared income, it's good to start the process well in advance in case you need to apply. Expect to jump through a few hoops and answer a lot of questions. Most importantly, know that what you do now will determine what type of candidate you are in the eyes of the lender later.