This series of posts by the Born Freelancer shares personal experiences and thoughts on issues relevant to freelancers. Have something to add to the conversation? Your input is welcome in the comments.
Maybe you’ve received them in the mail too.
Over the last couple of years I had got a number of “preauthorized” applications for “lines of credit” from one of the major banks.
I’d never really paid any attention to them.
A 9 to 5 friend was telling me how they’d had a line of credit for years; that they were so easy to get; and so useful to have.
In effect, you are pre-approved for a low interest loan (compared to credit cards) in advance so whenever you need it you can just take it out. No fuss, no bother, no hassle.
What a good idea. So why had I never bothered to investigate?
Well, mostly because I thought they were just another unwanted marketing ploy.
And, as a life long freelancer, I had always learned to manage to spend within my budget. If I couldn’t afford something I would wait and save for it. It meant rarely if ever going into debt and never ever needing to apply for a “line of credit”.
Until now.
I still didn’t need it but I thought it might be a good idea to apply for one anyway. Given the economic realities of the day, a line of credit could be a really good backup plan.
And since it was preauthorized, I figured, getting it should be a snap.
Reality Check
The first indication that it would not be a snap was when a very pleasant representative at that bank (where I had banked all my life) told me that the “preauthorization” had expired.
This made no sense to me. It still doesn’t.
If I was good enough to “preauthorize” for a line of credit a few months earlier, how was it that now I was no longer so qualified? Nothing had changed in my circumstances. I was still the same person.
But now I felt committed. I wanted to have the extra financial security of a line of credit in case I ever really needed it. I had come to understand that it would be a very useful safety net.
And so I decided to apply for a new line of credit at one of my regular banks. A major Canadian bank to which I had entrusted all my money for all of my working life.
The Born Freelancer Visits the Bank
Their representative couldn’t have been nicer. Friendly, courteous, helpful. And also frankly uncertain as to the likelihood of me qualifying. In a phrase, it would be a fifty/fifty proposition at best, in his professional opinion.
It seems that banks (or at least their underwriters who would ultimately offer me the line of credit) cannot get their heads around freelancers and freelancing. I guess in their minds they have a number of questions (born out of their blissful ignorance) about “freelancing”.
I imagine they might include:
* Does it mean you’re unemployed?
* Does it mean you don’t want to work hard?
* Does it mean you’ve opted out of conventional society and all its inherent values as we know and love them?
Trying to enlighten my bank representative that I was still an engaged, responsible, productive member of society took several long hours of my time. Time I would rather have spent in a more enjoyable pastime – banging my head on the wall or sticking needles in my eyes come to mind. But by the end I sensed that I had achieved something constructive as a result of our dialogue.
I felt that I had gained some genuine understanding and even sympathy from my bank representative. He now understood the freelancing world a little bit better. Perhaps I understood the banking world slightly better as well.
The fact that this mutual understanding might not translate into a line of credit still baffled me. My local branch rep was not the one who would decide the financial fickle finger of fate for me. Anonymous unknown underwriters scuttling about in darkened corridors of the financial industry would undertake that dirty deed.
Screw the sympathy. What I really wanted now was a line of credit.
Confident
I was still upbeat and confident. You see, I had a number of significant aces up my sleeve.
First, I owned “stuff” worth far more than the line of credit I was seeking. Good stuff. Solid stuff. Surely if they needed securities, my stuff would be more than sufficient.
Also – I had a long list of financial “good housekeeping” achievements that I could tick off with pride and satisfaction: I had a solid credit rating; I always paid my bills on time; I had never ever gone into any serious debt; I had fully paid off credit cards; I had an RRSP; and I always had a modest but healthy bank balance.
All of this would surely balance the fact that my annual freelancing income was somewhat unpredictable and historically had tended to fluctuate from year to year, on occasion rather dramatically.
Hey, I had even been “preauthorized” just a few months earlier by one of the major banks. That had to count in my favour too, right?
And so after having filled out multiple forms authorizing them to investigate and determine everything about me from my credit score to my blood type to my chances of ever winning the Boston Marathon, I departed feeling pretty confident that a line of credit would be reauthorized and available to me in due course.
While waiting, I contacted (now former) CMG staffer and defender-of-all-freelancers Keith Maskell and asked him why the traditional big banks in Canada seem so uncooperative when dealing with freelancers.
Keith Maskell’s insights
Keith replied:
“You’re running into what I think of as the single greatest hurdle for the modern freelancer: the Great Wall of Credit.
Financial institutions tend to look at not just income, but income that’s stable over time. Anything else just represents a bad credit risk for them.”
I wondered if I’d do better at a financial institution other than one of our major banks.
Keith replied:
I’m not aware of any institutions that have any extra love for the self-employed – although in my experience people tend to fare a little better with credit unions than they do with banks.”
Thanks to Keith’s insights I now had a better idea of what I was up against: “The Great Wall of Credit”. Oy.
Day of reckoning
When came the day of decision I heard nothing from my bank. Nothing unusual about that. They are a pretty big and busy institution. Nor the next day. By the third day I decided it would be much better to be proactive than reactive and so I called them up myself.
My friendly bank representative started talking about everything except the elusive line of credit.
I had a sick, sinking feeling in the pit of my stomach.
It was to prove entirely justified.
After all was said and done I had simply not qualified for a line of credit despite having “prequalified” only a few months previously. Despite all my numerous aces up my sleeve. Despite my lifetime good relationship with my local branch. Despite a positive rapport with my bank rep.
It seems that they had, in the end, totally and utterly fixated upon my fluctuating and unpredictable freelancing income.
The takeaway
Let my frustrating but eye-opening financial tale inform you.
It would appear to me that we freelancers are not truly understood nor respected by the major financial institutions we use every day.
While a substantially growing proportion of the general taxpaying work force is going freelance or self-employed, the banks’ attitude towards us seems to be stuck right in the middle of the 19th century.
If you are a working freelancer do not assume you can secure a line of credit or a loan any time you require one.
Like me, I’d suggest you apply for one well before you ever really need one so you can determine the reality of your situation.
You may be pleasantly surprised.
Or, like me, you may be most unpleasantly surprised.
Coming soon:
Suggestions on what can be done to combat “The Great Wall of Credit”.
* If you have had success applying for a LOC as a freelancer please leave us a comment letting us know how you did it.
* If you too have unhappy stories of being turned down for a LOC or loan based on your freelancing status, please tell us your stories too.
Only by sharing our experiences and eventually responding as an organized group can we ever hope to surmount the dreaded “Wall of Credit” erected high, wide and with supreme indifference to freelancers by our major financial institutions.
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Note: My belated and sincere thanks to former CMG staff member and stalwart advocate for freelancers Keith Maskell for his always invaluable advice. On behalf of all the many CMG members he has helped over the years, I wish him good luck and the very best on all his future endeavours.