Loans for sole traders


It can be difficult to access suitable business funding and financing when you’re a sole trader. Investing the time necessary to properly understand the options open to you, while simultaneously running your business, is no easy task. This is where understanding sole trader loans more effectively can really give you a head start.

Over the course of this article, you’ll learn the basics of sole trader loans, which will allow you to make a more informed decision about the right loan for your business.


Article Contents


  1. What is a sole trader loan?
  2. How does a sole trader loan work?
  3. Can all sole traders get a loan?
  4. Would it help to become a Limited Company?
  5. What else should you consider about sole trader loans?
  6. Is a guarantor or security required?
  7. Use our sole trader loan calculator



What is a sole trader loan?


Business Owner Working on Laptop


A sole trader loan is a broad term that applies to any loan provided to a business that operates as a sole trader. A sole trader is, as the name implies, a business that is owned and operated by one self-employed individual. You can still have employees as a sole trader, but the business must be owned by you as an individual.



How does a sole trader loan work?


Business Owner


A sole trader loan works like any other loan, in as much it’s essential for your loan provider to assess your financial circumstances. Through this, they determine your likelihood of being able to consistently make your loan repayments. So, for example, with a sole trader loan, you will be asked to provide evidence of the recent financial history of your business. If your business processes card payments, the volume of transactions and the average amount will also paint a picture of your financial health.



Can all sole traders get a loan?


Business Meeting


As with any other loan, there’s no simple answer. The reason is that every lender will have different criteria you must meet in order to qualify. For example – your business must have been trading for at least six months, or you must have an annual turnover of at least £60,000. It’s important that your business is established, as loan providers need to examine your business finances in order to calculate your suitability for a loan. If you’ve just started your business, you may find it difficult to find a sole trader loan – however, certain companies may offer special packages just for new businesses.



Would it help to become a Limited Company?


Business Meeting


Becoming a Limited Company involves altering the legal definition of your business structure. You can still operate a Limited Company on your own, however, a distinction is drawn between owners and directors (shareholders and managers). You may find it easier to get a loan as a Limited Company, but operating as one and becoming legally recognised as one is a more complicated process. With many companies out there offering sole trader business loans specifically for sole traders, becoming a Limited Company is not essential.



What else should you consider about sole trader loans?


Woman Cafe Texting


The advantage of sole trader loans is that they are highly versatile, and can serve as a cash injection for your business to cover a wide variety of costs. As many loan providers now offer dedicated sole trader business loans, you may also find that the packages are already well tailored to your circumstances. A disadvantage is that as a small trader you have considerably higher liability than a Limited Company. As such, you may encounter limits as to the amount of money you can borrow, payment term restrictions, and increased interest rates.



Is a guarantor or security required?


Working on laptop


It depends on the specifics of the loan you’re applying for. You can find both secured and unsecured loans as a sole trader. As with all loans, there are both benefits and drawbacks to secured and unsecured sole trader loans, so make sure you fully understand the terms and conditions of your loan. If you have not been in business for very long, have had recent cash flow problems, or you have bad credit, then a guarantor may be required. If you take card payments, Capify can offer a merchant cash advance and business loan for sole traders.



Use our sole trader loan calculator


Business Owner


Use our business loan calculator to help find the right sole trader business loans for you. Simply put in your details, and our business loan calculator will show you the best loan options available. Find our dedicated sole trader business loans calculator below.



Raise £3,500 to over £150,000 for your small business

Capify offers flexible finance with simple repayments. There are no massive monthly Direct Debits to think about, just small manageable payments that are easy to keep track of.

Get Approved



We’re trusted by thousands of small and
medium sized businesses.

We take pride in working with thousands of UK businesses, and we really appreciate what they say about our
products and services.