Business Loans for Sole Traders

Sole Trader Loans & Sources of Finance

What are sole trader loans?A sole trader loan can be a great source of finance for business owners who work on their own, but it’s important to understand the ins and outs of the available options before deciding which type of loan is best suited to your needs. There are various sources of financing, from government-sponsored schemes, to bank loans and peer-to-peer lending services.

It’s essential to compare all available options before committing to a particular type of loan, as each has its own advantages and disadvantages in terms of repayment period, interest rates, fees and more. In making such a decision, it is important to assess both the short term needs as well as the long term implications that arise from borrowing funds, so that the most appropriate choice can be made

What are sole trader loans?

Sole trader loans are a type of finance specifically aimed at individuals who are self-employed and need to fund a business activity or purchase. Such loans can provide an ideal way for sole traders to grow their businesses and seize potential opportunities efficiently, without worrying about putting a strain on existing funds.

For example, a loan could be incredibly useful to cover the cost of production materials, like taking out enough stock to fulfil large orders. Those in more capital-intensive industries, such as construction or engineering might also benefit from being able to borrow money to purchase expensive equipment they wouldn’t have been able access otherwise. Sole trader loans can be secured against assets, such as land and property, or unsecured depending on the specific requirements and circumstances of the borrower.

As a sole trader, trying to secure finance can be frustrating. You may be deemed ‘higher risk’ than limited companies, so more traditional forms of funding (such as a bank loan) might not be suitable. The best option for you is often alternative funding in the form of a sole trader loan

These loans usually come with flexible repayment terms and don’t require any collateral – giving you more stability and peace of mind when you secure the loan.

Other sources of finance include a secured loan, an unsecured loan or retained profits, so you have some options available to you if they fit your needs.

Fortunately, we can help you find lenders who are willing to lend to sole traders such as yourself – just contact us for more information!

How do sole trader loans work?

Sole trader loans work much like any other loan, the lender will assess your business finances such as profits and liabilities to determine whether you can realistically afford the loan. Once approved, you will begin to repay the loan in monthly instalments over a given period of time.

This typically is done within a few years and these payments will include interest as well as the principal amount borrowed. So if you need an extra financial boost for your business, then a sole trader loan may be an option worth considering.

What can you use a sole trader loan for?

As a sole trader in the UK, you’re part of an elite 3.5 million people who have taken the brave step to strike out on their own. There will always be times when business is booming and you require extra cash flow to reach new markets, finance additional resources, or stock up on supplies. During these busy times, use a sole trader loan to take your business to the next level and get yourself ahead of the competition.

On the flip side, however, there can be leaner months where finances are tight and sales slow down – use a sole trader loan as a form of financial safety net so that you can still cover costs from rent/mortgage payments to business rates or staff salaries. Whether you use it for starting up or sustaining your trade, having access to quick and accessible funds at different points in your career could turn out to be invaluable.

You can use your sole trader finance for:

  • Marketing your business
  • Buying business equipment (laptop, stock etc.)
  • Covering income when months are slow
  • Hiring staff or paying their wages
  • Business expansion or growth
  • Anything that is related to your business

What are the advantages and disadvantages of sole trader loans?

As with any type of business finance, it comes with pros and cons. Its best to take some time to review if the pros outweigh the cons for your business.

The advantages of sole trader loans

  • Bespoke finance – as a sole trader your loan will be bespoke to the needs of sole traders, unlike traditional finance.
  • Wide selection of different funding options – you have the option of both unsecured and secured loans.
  • Instant cash injection – the finance will offer an instant cash injection to help you maintain or grow your business.

The disadvantages of sole trader loans

  • A Personal guarantee may be required – you maybe required to offer a personal guarantee against the finance you have taken.
  • Risk of losing assets – if you fail to make repayments can negatively impact your credit score or your asset repossessed with a secured loan.
  • Limited borrowing cap – sole traders have a much higher liability than a limited company, this can mean you may not be able to borrow as much money.

What sources of finance are available to a sole trader?

Although sources of finance may seem scarce or hard to secure as a sole trader, alternative financing offers a range of options tailored specifically to your business. Whether you’re looking for a short-term loan, long-term loan or an influx of capital that doesn’t require repayment, there are sources of funding out there which can bypass the traditional routes such as banks and offer more advantageous terms.

Explore the potential sources for yourself and find out how you can improve the financial outlook for your business. The following three types of finance are available to sole traders, read about each below.

Own personal funds or retained profits

Own personal funds or retained profits can be a critical financial asset for sole traders, as they provide ultimate flexibility with managing finances. This internal source of funding differs from external sources such as loans, making it an ideal financing choice. Retained profits offer a challenge to the sole trader’s business acumen and if managed intelligently can become an invaluable resource.

Its wise to make sure any retained profits are reinvested for growth in order for the business to remain profitable and maintain its advantage over competing traders.

Retained profits are one of the most powerful tools available to successful businesses. When a business earns a positive net income, it has the option to reinvest that money back into its operations as retained profits. By doing this, businesses can put aside funds for important investments such as expanding their operations, paying wages and increasing their stock of assets without having to take out a loan. This can be a great way for businesses to make the most of their earnings, so long as those earnings are profitable in the first place.

Unsecured business loans

Unsecured business loans can be an invaluable tool for sole traders looking to grow and expand their operations. Unlike traditional bank loans, unsecured business loans do not require collateral as a guarantee, allowing companies to free up assets and take advantage of increased capital with fewer requirements. However, the comparatively higher interest rates associated with unsecured business loans can put additional strain on already tight budgets.

Although an unsecured loan can help some companies stay afloat in difficult times, informed decision-making is key to any successful financial strategy. Before taking out a loan of any kind, it is important to understand all the associated fees and terms so that you can select the best option for your company’s needs.

Secured business loan

Secured business loans can provide small businesses with an effective way to raise the capital they need, without straining resources. They are particularly attractive to lenders as the loan is secured against assets, meaning that should you fail to make payments, the lender still has some form of compensation. Whether they are used to modernise existing stock or finance a new premises, secured business loans can give companies the opportunity to take risks and expand their portfolios.

Securing a business loan is an important process to make sure that your venture has the necessary funds. However, you should be aware that even if an asset is used as collateral, some lenders may require a personal guarantee in order to secure a loan. For this reason, it is beneficial to take the time and understand what each lender requires before making your final decision.

This can ultimately minimise any potential financial risks in the future and ensure that you are making the best choice for your business. Such investments remain beneficial in both short-term and long-term cycles, due to their flexibility; allowing repayments over various repayment periods. Last but not least, if managed correctly they could potentially improve a company’s overall credit score.


Crowdfunding has revolutionised the way entrepreneurs launch their own business initiatives. Crowdfunding is a concept that allows aspiring entrepreneurs and inventors to showcase their products and services to a wider audience with the goal of achieving financial stability for their burgeoning company or service. Crowdfunding campaigns allow you to easily spread awareness about your product or service, allowing you to reach thousands of potential customers who can help fund your new venture.

Through this method, startups are able to raise funds by selling equity through different investment platforms and exchange these funds for investments in their company or services. Crowdfunding is quickly becoming an effective tool for entrepreneurs to build capital and aim higher in today’s ever-evolving digital landscape

Does the FCA regulate sole trader loans?

It is often assumed that business loan regulations are not stringent, however FCA regulations exist to ensure fair lending to some companies and sole traders. According to the FCA reports, any business loan amounting to £25,000 or less towards a sole trader is subject to FCA regulation. Lenders must pay attention to FCA regulations and take them into consideration when dealing with potential customers’ loans as FCA penalties can be severe in cases of non-compliance.

Consumers should also be aware of the FCA regulations which apply specifically to them in order to secure a better financial future while engaging with lenders.

What is the FCA?

The FCA is the UK’s financial regulator, designed to help keep the public safe. By ensuring the people who offer financial services do so legally and fairly, the FCA is the authority you can trust to make sure you get the right advice or receive the best deal available. To check if the firm or individual providing the service is authorised by them, you can also search their FCA Register.

The Financial Conduct Authority plays an important role in regulating the industry, so always make sure to do your research before engaging in any type of financial transaction.

Can I get a sole trader business loan if I have bad credit?

Owning a sole trader business can be a challenging endeavor and managing your finances is an integral part of making it successful. But if you have bad credit and are looking for sole trader business loans, obtaining financing may be difficult. With a poor credit history, lenders might see you as a high risk borrower, leading to fewer options available.

To lessen the risk, many lenders might require the applicant to have a guarantor when taking out sole trader business loan if they have bad credit. At our company, we specialize in providing businesses with all available funding sources regardless of your credit status or score. Fill out our form and get started now on finding the sole trader business loan that best fits your needs!

Can I compare sole trader loan providers?

Comparing loan providers is an important step to ensure you secure the best sole trader loan for your needs. There are many lenders available in the UK and it can be difficult to compare them on an individual basis to find the best deal. We do the hard work for you by giving you access to a wide panel of UK lenders and getting you a much better understanding of what is available for sole traders looking for financing. This allows you to compare loan offers swiftly, ensuring you get the best loan offer suited to your needs.

Can all sole traders get a loan?

For all sole traders who are in need of a loan, you don’t have to feel discouraged. You usually have to have been trading for at least six months or an annual turnover of £60,000 minimum to secure a loan and eligibility. If you meet either of these requirements, our startup business loans could offer a better fit for your business right now. Take advantage of all the potential that a loan could provide and start building towards greater success.

Do I need a business bank account to get a sole trader loan?

If you are a business owner, you may not need to open a business bank account if you are interested in obtaining a sole trader loan. Depending on the lender, this could be possible. Having said that, it may still be beneficial to do so as it can help differentiate between your business and personal finances.

Luckily, there is an array of options available online in terms of sole trader business accounts that can easily be compared prior to making any decisions.

How can I apply for a sole trader loan?

Applying for a sole trader loan can be a daunting task, we are committed to making the process easier. To get started, all you need to do is fill in our short form. Once we receive your application, we will match your answers with our partners who offer suitable loans and provide you with free quotes.

These lenders will then contact you directly via email or phone to discuss any additional details and provide the quotes. You are not obligated to accept any of these quotes; you have the freedom to choose from multiple offers.

And if you decide to apply for one of our partner’s loans, just let them know and they’ll help guide you through the rest of the application process and distributing the funds.

Why choose PDQ Funding

We realise the great amount of effort and energy that goes into running a sole trader business, so researching different loan types can be an intimidating process. That’s why we provide an invaluable service by creating a free 100% comparison tool for sole traders.

Our experienced brokers will search through a wide range of loan options to find you the best fit in the UK, removing the headache that comes with researching the various loan products available.

With this helpful service, you don’t have to sacrifice your time from your business – just sit back, relax, and watch as your most suitable lenders send their competitive offers directly to you. Get started today with our free sole trader loan comparison service.

Lee Jones Profile Image
Business Finance Expert at PDQ Funding

Lee Jones is a seasoned Business Finance Specialist with over two decades of invaluable experience in the financial sector. With a keen eye for market trends and a passion for helping businesses thrive, Lee has become a trusted advisor to countless organizations seeking to navigate the complexities of finance.