What are sole trader loans?
Sole trader loans are available to businesses owned and run by a self-employed individual. Unlike limited companies, sole traders are not required to submit paperwork via Companies House, making it more difficult for them to access funding through traditional facilities. A sole trader loan can either be secured against personal or business assets, or unsecured where no collateral is necessary. We work with lenders experienced in providing sole traders loans up to £500k.
- Unsecured funding
- £1,000 - £500,000
- 1 - 3 year repayment terms
Can a sole trader get a business loan?
Yes, sole traders can qualify for business loans but finding an appropriate lender to borrow the money from can be harder than it is for limited companies. This is because sole traders are perceived as ‘high risk’, and many lenders refuse to lend on the basis of bank statements alone.
What are the sources of finance for a sole trader?
According to the Federation of Small Businesses, there are 3.4 million sole proprietorships, and 4.3 million non-employing businesses operating in the UK. Though their options can be perceived as limited when compared to larger private and public companies, sole traders have various solutions available to fulfil their business’ financial needs. These are the sources of finance a sole trader can get:
- Unsecured business loans
- Retained profits
- Hire purchase
- Secured loans from banks
- Crowdfunding options
An unsecured business loan enables you to access a certain amount of money upfront. After receiving the cash, you repay the loan in monthly instalments until the amount has been paid off in full. Unsecured business loans can help sole traders manage cash flow and business finances, without having to provide assets as security.
- As a sole trader it’s likely that you’ll be asked by the lender you’re matched to for a personal guarantee. Lenders often use personal guarantees as a form of security for ‘higher risk borrowers’.
- Much like personal loans, a personal guarantee agrees that if your business defaults on loan repayments, you as the sole trader will be personally liable for repaying the loaned money to the lender.
This source of funding benefits sole traders with a positive net income. It works best for profitable businesses and enables the sole trader to choose to reinvest the profits back into the business. By retaining earnings, money can be spent to fund expansion without taking out a bank loan or borrowing from a lender or investor.
For sole traders interested in acquiring certain assets for their business, hire purchase may be the best option. With hire purchase you pay a proportion of the asset’s value as down payment before paying a ‘rental fee’ in monthly instalments until the full payment has been cleared and you are able to keep and own the asset.
Secured loans from banks
Sole traders are able to approach traditional lending facilities such as banks when applying for a secured loan, credit line or credit card. However, these facilities often refuse to lend to sole traders because they perceive their businesses as ‘higher risk’. They will often charge high rates to compensate for the risk, and many sole traders wait weeks to find out their application has ended in rejection.
In 2016 crowdfunding provided 15% of total startup and venture-stage equity investments in the UK, and this figure continues to grow year on year. Crowdfunding platforms like Crowdfunder allow sole traders to pitch their business ideas online to a pool of potential investors who can choose to support via donations. Under the umbrella term ‘crowdfunding’, you will also come across the terms ‘peer to peer’ and ‘equity’.
Peer to Peer (P2P)
Debt-based crowdfunding, also known as peer to peer lending, functions similarly to loans, except that you lend the money from a pool of people. These platforms operate like marketplaces and bring together lenders with sole traders needing loans:
- Investors receive interest on money invested into your business
- P2P platforms often charge fees to use their sites
- A poor credit score can hinder your ability to receive finance
Equity crowdfunding is the process where people make an investment in exchange for shares in the sole trader’s business. As a sole trader, the investor takes partial ownership of the company and can then profit off the company doing well in the future. With equity crowdfunding:
- Sole traders must give up partial ownership of business
- Platforms typically charge monthly fees or success fees after being matched with investors
- There can be a large amount of competition on the platform
What are the best sole trader loans?
We believe it is vital to recognise the importance of sole trader businesses in the UK economy. Because of this, we are committed to providing easy access to funding for sole traders among the other types of businesses we help. With so many options available, it can be tricky narrowing it down. When finding the best sole trader loan for your business, you need to take into consideration:
- How long your business has been trading, and what your monthly turnover looks like
- How much you need to borrow and how long for
- Whether or not you want to provide collateral
- Your ability to easily make repayments
Why choose our sole trader loans vs. our competitors?
Our dedicated account managers are experienced in providing unsecured loans for sole traders across the UK and as such are best positioned to find the most competitive rates for your business. We keep the process simple and do the hard work for you, comparing sole trader lenders so you don’t have to do it yourself. As well as this:
- Financial Conduct Authority Approved. The lenders that we work with are upheld to lending best practice, registered in England and Wales, authorised and regulated by the Financial Conduct Authority.
- Bespoke Repayment Plans. We will find a repayment plan that suits your business’ needs, choose to pay back over 1 - 3 years.
- 1 Month Cooling Off. If you change your mind you have one month to cancel your loan agreement, free of charge.
- No Application Fees. Unlike other brokers, we never charge fees to customers for applying or setting up their loans.
What are the benefits of sole trader loans?
When applying for an unsecured sole trader loan, the main advantage is the fact that you don’t have to provide security through collateral. Not only does this keep valuable business assets safe, it also means that you are able to access funds far quicker. Our sole trader loans can be arranged to see cash in your account in just 24 hours. Other advantages include:
- Online application - No need to wait weeks or months waiting for an appointment at your High Street bank.
- Greater chance of approval - With so many lenders on our panel, the likelihood of finding a good match increases.
- Maintain business control - You keep 100% ownership of your business and get to make all decisions associated with the loaned money.
- Competitive interest rates - By applying through a broker, you benefit from access to the lowest rates on the market.
Am I eligible for sole trader loans?
We aim to help as many sole traders as possible gain approval for finance. When applying for a sole trader loan, our simple requirements are as follows:
- Registered in the United Kingdom
- Actively trading for a minimum of 6 months
- Has a sole trader that is over the age of 18
If you want to find out more about whether your sole trader business is eligible for finance, please get in touch at 020 3475 9213.
Excluded business types:
- Gambling, drugs, weapons, chemical manufacture, pornography, banking and money transfer services
How can I get a sole trader loan?
We have designed our application with busy sole traders in mind. To avoid any confusion when applying, we’re on hand to guide you through any questions you may have. Follow our simple online step:
- Step 1: Complete our 1-2-page online application form. As well as being asked for your personal information, we will also want to understand more about your sole trader business, including how much funding you’re seeking. Please ensure you read carefully through our terms and conditions before making an application.
- Step 2: Within hours of submitting your application form you will be matched by us to the most suitable lender and you will receive the lender’s full terms of agreement regarding your business funding.
- Step 3: Once you have carefully read through the lender’s terms, you will need to sign and agree to them. After the agreement has been returned to your lender, the loan amount will be deposited to your account within just 24 hours.
What is a sole trader?
A sole trader business is a type of business entity where the business is owned and run by one person. Also known as sole proprietorship, if you run your own business you work for yourself and fall under the category of self-employed.
As the head of your business, you are wholly liable for the successes and/or failures your sole trader business makes. Whilst being a sole trader comes with big responsibilities, it has several attractive benefits. Including the advantage of being able to take home 100% of the profit your business makes after tax.
- Once you decide to go into business by yourself and become self-employed, you will need to register your sole trader business with HM Revenue & Customs.
How do I register as a sole trader?
In comparison to setting up a limited company, registering as a sole trader is relatively easy. There is little to no paperwork and you can benefit from your business affairs remaining private. In order to register, you can either:
- Print off and complete the form and send to the required address
- Phone HMRC at 0300 200 3310
- Complete the form online via HMRC’s portal
Before registering and being given a company number, you will first need to decide on a name for your business. HMRC states that you can trade under your own name or another, however you cannot:
- Include Ltd, limited, limited liability partnership, LLP, public limited company or PLC in the name
- Use the same name as an existing trademark
- Be offensive in the name you choose
For more information on registering or setting up as a sole trader, read our useful blog post on how to setup a sole trader business.
Top Tip: Register your business name as a trademark to prevent others from trading under it. The Intellectual Property Office has published a trade marks manual to help you apply and register your sole trader business' trademark.
What expenses can I claim as a sole trader?
Sole traders incur running costs when managing their businesses. Luckily, a number of these costs can be claimed as business expenses, referred to as ‘allowable expenses’ and means that the business owner can pay less income tax and make more of a profit.
Income received by your business – allowable expenses incurred = profit.
- Office costs: claim items you’d normally use for less than 2 years, eg: stationary
- Travel costs: covers expenses such as vehicle insurance, repairs and servicing, fuel and parking, vehicle license fees, train bus air and taxi fares, hotel rooms
- Clothing expenses: includes uniforms, protective clothing needed for work, costumes needed for the business
- Staff costs: employee salaries, bonuses, pensions, benefits and agency fees
- Things that are bought to sell on: stock, raw materials and direct costs from producing goods
- Financial costs such as insurance or bank charges
- Business premises costs: heating, lighting, business rates
- Advertising for marketing
HMRC’s rules are complex when it comes to claiming expenses, so in order to account for your expenses properly, you need to keep thorough and accurate records of everything being spent. Sole traders are legally bound to keep these records for a minimum of 6 years.
Similar to limited companies, sole traders are able to claim back expenses incurred that relate directly to their business. As expected, expenses can only be claimed if they are ‘wholly and exclusively’ incurred in the performance of your business duties. You are able to claim expenses when filing for your annual self assessment, and should remember to not mix business with personal.
How do I do a self assessment tax return?
When setting up your sole trader business, you’ll need to register for Self Assessment and file a tax return annually at the end of the tax year (5th April).
Did You Know? Self Assessment is a system that HMRC uses to collect income tax. After registering as a sole trader, you can expect to receive a letter in April explaining when and how to complete your first self-assessment form.
Once registered, an online account for your business’ Self Assessment will be set up with your Unique Tax Reference number, which you will use for all correspondence with HMRC.
Other responsibilities for sole trader businesses include:
- Paying income tax on your profits and National Insurance Contributions
- Keeping records of both your business’ sales and expenses
- Registering for VAT if your business turnover is greater than £85,000
How much National Insurance will I pay as a sole trader?
Sole traders pay income tax that is based on their business profits. The amount paid is calculated from the Self Assessment tax return that is required to be submitted annually. Sole traders must pay their National Insurance Contributions (NIC), a flat rate Class 2 which equates to £2.95 per week (2018 / 2019).
If your sole trader business’ annual profits exceed £8,424 then you are also required to pay Class 4 which is 9% of your profits a year.
Frequently Asked Questions
If we haven’t answered all of your questions about sole trader loans, then take a look at some of the most frequently asked questions below.
What is a sole trader loan?
A sole trader loan is a form of finance tailored to self-employed people who run their own business. Sole trader loans are used to help self employed business owners who struggle to be accepted for traditional forms of finance. Usually, the loan can be either secured or unsecured.
How can I get a sole trader loan?
To get a sole trader loan from an online broker you will need to fill out an online application. The application will require you to provide some information about the business, such as how long the business has been trading for. Furthermore, you’ll also need to state your personal information, contact details, and how much money you want to borrow.
Once your loan application is accepted, one of our lenders will be in touch to discuss your loan options and any other questions you have.
Why choose SME Loans for a sole trader loan?
At SME Loans, we understand how important it is that your business is performing at its best and has the ability to grow. That’s why we work with a panel of top regulated lenders who are able to offer competitive rates on their loans. Our online form is safe and secure and can be completed in minutes, making the process as easy as possible.
If you’re not quite sure on taking out a loan, our guide to sources of business finance is worth reading for more information about the different forms of finances available to businesses. We include links to great financial products such as invoice financing, business credit cards, and more business loans.
Do I need good credit to apply for a sole trader loan?
You can still get a sole trader loan even with a poor business credit history. You may find it harder to be accepted for the specifics you require, but you can still find a business loan when applying with an alternative credit broker or lender.
It is always recommended to improve your business credit score in order to get the best loan possible. For more information, such as affordable tools and tips to help manage your credit score, try reading our useful guide.
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