sole trader loans

Can Sole Traders Get Business Loans?

Can you get a business loan if you’re a freelancer operating as a sole trader? We take a look at this and other common questions.

Being a sole trader as opposed to a limited company has both its advantages and disadvantages. As a freelancer, you’ve weighed those up and decided the sole trader route is for you, you’ll doubtlessly be familiar with these.

When being a sole trader rather than a limited company can present more complications is when looking for business loans. So here we’ve researched, spoke to experts and compiled answers to some of the most common questions around loans for sole traders.

Can you get a business loan if you’re a sole trader?

Yes. You can. There are business loan options for freelancers operating as sole traders.

However, not all lenders offering business loans will offer them to sole traders. Some do indeed restrict their eligibility criteria to limited companies only. So you’ll need to shop around. But in short? Yes, it’s possible to secure a business loan even if you’re a sole trader.

What types of business loans are available for sole traders?

Typically, business loans for sole traders will fall into the categories of either secured or unsecured.

With a secured sole trader loan, you must have an asset or similar that is secured against the loan. In short, it means that asset is as risk if you fail to make repayments.

Unsecured loans are not secured against assets or collateral so are typically regarded as lower risk in that respect. It’s not unusual to find, however, that unsecured loans have higher interest rates.

Will I have to provide a personal guarantee for a sole trader loan?

Possibly. 

Typically speaking, sole traders have less by way of business specific assets. And in many cases, lenders may seek a personal guarantee for either secured or unsecured sole trader loans.

 

Can I use a personal loan for business use?

For a number of freelancers, one loan option they consider is taking out a personal loan to use for business purposes. There is no set rule about whether this is ok or not. Every personal loan lender will have its own terms and conditions. Some are very specific about what the loan can be used for, so you will need to check with the lender.


The other thing worth bearing in mind if you’re considering a personal loan for use in business as a sole trader is that self employed people may need two years of accounts to obtain a personal loan.

Alternatives to business loans for sole traders

It’s always worth exploring every business funding option before applying for loans. Depending on your status, the amount your require and what you need it for, you may find a suitable small business grant.

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