There are a number of loans you can apply for as a sole trader. These include:
| Type of loan | Loan amounts | Features and repayments | Pros and cons |
|---|---|---|---|
| Business overdraft | Loan amounts will vary based on the lender and your business' financials. You may be able to get an overdraft of up to $750,000. | - Linked to an existing business account - Available once you use up funds in your account - Unsecured loan - Variable interest rates - Ongoing account, minimum repayments required |
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| Line of credit | Loan amounts will vary based on the lender and your business' financials. It could go up to $15 million or higher. | - A line of credit allows you to draw cash as and when you need it. - You pay interest only on the money you use, not the entire loan amount. - Regular, minimum repayments on your balance |
|
| Secured business loans | Loan amounts vary, with some lenders offering up to $100 million while others don't have maximum borrowing amounts. | - Borrow a large sum of money, using an asset as security. - Fixed or variable interest rates. - Regular loan repayments over a period of time. |
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| Unsecured business loans. | Loan amounts could range up to $1 million, although it varies according to the lender. | - Borrow without security - Faster applications - Higher interest rates than unsecured loans. |
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| Invoice financing. | You could borrow up to 80–90% of your unpaid invoices. Funding up to $150 million may be available. | - Get funding against your unpaid invoices - No asset required as the loan is secured against your unpaid invoices - Get quick access to funding. - Fees apply, with your invoices will pay for the rest of the loan. |
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If you're not sure what type of loan is right for you, these questions can help narrow down your options:
A business loan with a lower interest rate saves you money by reducing your interest charges.
Secured business loans have lower rates than unsecured loans.
Business loans often come with application or establishment fees charged as a percentage of your loan amount. Monthly fees can also add up and make the loan more expensive.
Factor fees into your comparison and try to find a loan with lower fees.
The amount a sole trader can borrow depends on their business income. But lenders have minimum and maximum loan amounts for their loans.
Check if a loan will let you borrow as much (or as little) as you need before applying.
Does a business loan let you choose fortnightly or monthly repayments? Does the lender offer fast loan approval? Can you repay the loan early without penalty?
Comparing all of a loan's features gives you a clearer idea of how suitable it is for your business needs.
Lenders require you to use the funds for business purposes and not personal uses. And some lenders may require detailed business plans that show how you will use the funds and how they will generate income.
Sole traders might use a business loan to:
If you haven't been operating as a sole trader for very long (under 12 months to 2 years, depending on the lender) you may not quality for a loan. Or you may have to provide extra information in your application.
Every lender requires slightly different documents. This also depends on the type of loan you apply for.
Most lenders require some or all of the following:
Online lenders often have more flexible requirements than banks. It's important to find out what a lender's business lending criteria are before you submit your application.
If you haven't been running a business as a sole trader long enough to have the financial information a lender requires, you have a few options:
Read our review of the Good for B business loan. Find out if this green business loan is suitable for you.
Whether you're looking to grow your business, support company cash flow or purchase new equipment, Bank of Melbourne could have a loan option for you.
Whether you're looking to support cash flow, grow your business or purchase new equipment, BankSA may have a business loan option for you.
Heritage Bank's Fully Drawn Business Loan is a flexible business finance offering with both fixed and variable rate options, a high maximum loan term and no limit on borrowing power.
BOQ Business Term Loan lets you borrow from $10,000 and benefit from flexible repayment terms and access to a redraw facility.
You may be able to get better rates and loan conditions with increased flexibility, quicker decisions and better customer service through non-bank lenders.
Apply for a loan of up to $250,000 and have the approved money in your account within three days with NAB's QuickBiz Loan.
This small business loan offering from OnDeck could provide you with up to $250,000 financing in 24 hours.
Do you need finance to help your small business grow? Moula offers loans of between $5,000 and $250,000 with flexible eligibility criteria – apply online by providing your business data and find out if you've been approved in 24 hours.
