Yes, sole traders and self-employed business owners can qualify for business loans but will find it more difficult to borrow money than a limited company. You’ll need to meet specific lending criteria when applying for a business loan, such as minimum annual turnover or trading history. This could limit the number of loans you’ll be eligible for.
As a sole trader, you may also be eligible for a government-backed Start Up Loan, which offers loans of up to £25,000 to new businesses and business owners looking to get their company off the ground.
Keep in mind that you generally won’t be able to get a personal loan to fund your business, even if you’re self-employed and operate as a sole trader.
How much can sole traders borrow?
It’s likely you’ll be unable to borrow as much as an established business, unless you have comparable trading history or earnings to support a larger loan. As with any loan product, you should only borrow as much as you actually need to avoid expensive interest repayments.
What types of finance are available to sole traders?
Most forms of business finance and loans are available to sole traders, but you might find you’re limited in how much you can borrow. The types of business loans available to sole traders include:
You can use a sole trader loan for any worthwhile business purpose. This includes the following:
Purchasing equipment
Covering business expenses
Funding business premises
Managing cash flow
Am I eligible for a sole trader loan?
In order to be eligible for a sole trader loan, you will generally need to meet the following criteria:
Be at least 18 years old
Be a UK resident
Have a UK-based business
Depending on the type of business loan you require, you may also need to provide additional evidence and documentation, such as business plans and trading history.
Can I get a sole trader loan with bad credit?
Yes, you may be able to get a business loan as a sole trader even if you have bad credit, but you may find you have fewer options compared to someone with good credit. As a sole trader, lenders may put more weight on your personal credit history when considering you for a loan compared to a larger business.
You may be better off applying for a secured business loan, or, if applicable, asset or invoice financing. Lenders may consider these types of loans as less risky forms of borrowing and therefore may be more likely to approve you, even if you have bad credit.
How to apply for a sole trader loan
Identify the type of loan you need. Are you looking to fund new equipment or premises, or do you need invoice financing to help manage your cash flow?
Calculate how much you need to borrow. As a sole trader, it’s especially important that you don’t end up having to pay more in unnecessary interest.
Find a lender. There are many business lenders that specialise in certain types of business loans, so it’s worth comparing all your options.
Check your eligibility. Once you’ve found a suitable lender, make sure you meet its lending requirements before applying.
Apply for the loan. Contact the lender to make a loan application, including all necessary documents.
Pros and cons of sole trader loans
Pros
There are both government and commercial loans available
Multiple loan and finance options
Can help improve your cash flow or finances
Cons
You may be limited in the loans you can get compared to recognised businesses
Borrowing can be expensive
Bottom line
Business loans can be a key source of finance for sole traders. It’s important to understand the options available to you and how much you can afford to borrow, before you start applying for a loan.
Frequently asked questions
You can set up as a sole trader in the UK by registering for self-assessment through the UK government site.
Not necessarily, but this will depend on the type of business loan you require and the specific lender.
Yes, most recognised business loans should be regulated by the FCA, but it’s important to confirm this is the case before applying for a certain loan.
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Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full bio
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