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Business loans for sole traders

Learn about and compare your business loan options as a sole trader.

Updated

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It can be hard for sole traders to get finance. Banks and other lenders look at individual business operators as relatively high-risk entities. If you're a sole trader starting up a new business, getting finance can be even harder as you probably won't have a lot of financial documents to demonstrate the strength of your business. This guide will take you through the types of loans available to sole traders and how to compare loans to find the right one for you.

How can a business loan help me?

If you're a sole trader, a business loan can help you do the following:

  • Fund your new business venture
  • Purchase an existing business
  • Purchase stock, equipment or inventory
  • Expand your current business
  • Meet a sudden increase in demand

Bria Horne

Expert overview: 3 things you should know about getting a business loan as a sole trader

  • Getting a business loan as a sole trader may be a bit trickier but you still have multiple loan options including overdrafts, lines of credit and invoice financing.
  • To bolster your application as a sole trader include as much as you can in the application: a business plan, financial forecasts and details of your experience in the industry.
  • Banks generally require security but many alternative business lenders do not.

Loans you can apply for today as a sole trader

Data indicated here is updated regularly
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Valiant Finance Business Loan Broker
$5,000
$1,000,000
3 months to 5 years
$0 application fee
A Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 70 lenders. Loans between $5,000 and $1 million are available. Request a call – your loan can be funded in 1 business day.
Prospa Business Loan
$5,000
$300,000
3 months to 3 years
3% origination fee
Small business loans are available from $5,000 - $300,000 on terms of up to 3 years. At least twelve months trading history and a monthly turnover from $6,000 is necessary.
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Compare up to 4 providers

What types of loans should I consider?

There are many financing options available for businesses. As a sole trader, you’ll need to take into account your business and personal finances when deciding on the best loan type.

Loan type

Amount

Features and Repayment

Pros and Cons

Business overdraft

$10,000- $100,000,000
  • Linked to an existing business account
  • Available once other funds are exhausted
  • Unsecured loan
  • Variable interest rates
  • Ongoing account, minimum repayments required
  • Unsecured loan
  • Useful when your funds run low
  • Can only access funds once other accounts are depleted
  • Requires an existing bank account

Line of credit

$10,000- $100,000,000
  • A credit line gives you quick access to cash
  • Only pay interest on money you spend
  • Options for ongoing or fixed terms (1-5 years)
  • Regular, minimum repayments on your balance
  • Less risk and cost than a large loan
  • Access cash quickly
  • Requires good credit history

Term loan

$10,000- $500,000
  • Borrow a single lump sum and pay it back
  • Fixed or variable interest rates
  • Regular fixed loan repayments
  • Stable loan with no surprises
  • Can provide your business with a large amount of cash
  • Lack of flexibility
  • Borrowing a large amount of money brings higher risks

Unsecured cash loan

$1,000- $100,000
  • Get cash quickly without requiring security
  • Fees and higher interest rates typically apply
  • Good for small, temporary cash flow shortages
  • Usually approved quickly
  • Can be expensive
  • Unsecured loans expose your business to risk if you can’t pay

Invoice financing

Typically 80% of the invoice amount
  • Use your unpaid invoices as collateral for a loan
  • Get quick access to cash
  • Fees and interests apply
  • A reasonably low-risk option for an established trader
  • Not really an option for new businesses

Compare invoice financing products

Data indicated here is updated regularly
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Timelio Invoice Finance
$10,000
$100,000,000
Up to 4 months
$0
Get up to 100% of the value of your invoices without having to wait for customer payments, and with no minimum turnover or operating history required.
ScotPac Invoice Finance
$10,000
$150,000,000
From 1 year
No set amount
Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $10,000 in invoices.
ScotPac Selective Invoice Finance
$10,000
$1,000,000
1 to 3 months
$500
Finance your unpaid invoices on demand with terms of 1 - 3 months. 95% of invoice is paid upfront, with no minimum trading history required.
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The type of loan you choose will obviously depend on your business needs. If you’ve been a sole trader for a long time, you likely understand your needs very well. For sole traders starting new ventures, this can be harder to evaluate. Do as much research as possible and don’t be afraid to reach out to experts or successful self-employed business people for advice.

Can sole traders take out personal loans for their businesses?

As a sole trader, you might have the option of taking out a personal loan rather than a business loan. There are various reasons why you might opt for a personal loan, but it’s important to know the differences between the two.

Personal loans
  • Easy application. Apply using your personal credit history.
  • Flexibility. You can use funds from a personal loan for business or personal expenses.
Business loans
  • Stricter lending guidelines. You’ll generally have to provide financial documents related to your business.
  • Strict spending rules. You cannot use a business loan for personal expenses.

Learn more about the differences between personal and business loans.

What do I need to consider before applying for a loan?

There’s a lot to consider when applying for a business loan. The more knowledge you have about your own business plans, expenses and cash flow, the better equipped you’ll be to get the right loan. Your loan choice depends on whether you’re an established sole trader or starting a brand-new business.

As an established business owner, you’ll need to consider the following:

  • Financials. As an established business, you should have records highlighting your profits and losses and at least two years of tax returns to show your lender. The state of your accounts has a big impact on your loan options.
  • Cash flow. How much cash will your business have on hand in the coming months? Do you have personal funds you can use if you’re short? If you’re facing a (hopefully) brief and temporary cash shortage, you might not have to consider a large term loan.
  • Business costs. You should have a clear idea of your fixed operating costs. Factor these into your estimates for the future and work out how much you need to borrow.
  • Security. You might be able to use a personal residential property or even your business itself as security.
  • Debts and assets. Debts may limit what you can borrow, but you can use assets, such as invoices or purchase orders, as collateral to secure finance.
If you’re starting a new venture, you’ll face challenges getting financing. But don’t despair. You’ll need the following to apply for a loan:

  • Business plan. A detailed, clear business plan is very reassuring to a lender. You shouldn’t think of becoming a sole trader without one. Be sure to include an analysis of your competition, your future plans and cash-flow predictions.
  • Security. Lacking a business history, having some form of security, such as cash assets or a residential property, improves your chances of getting a loan.
  • Personal credit history. Having a good personal credit history is a positive sign for potential lenders.
  • Skills and experience. Your career experiences and skills are another metric by which lenders can assess the strength of your proposed business. Fix up your rĂ©sumĂ© and, if needed, brush up on the qualifications or skills essential to your trade.
  • Cost estimates. Try to estimate what your business costs will be. You need to compare existing businesses and do your research.

What financial documents do I need to submit to a lender?

If you’re a sole trader and you’re looking for a loan, there are several important documents that will help your loan application. These include the following:

  • Tax returns. Having several years’ worth of tax returns gives lenders a much clearer idea of how your business looks.
  • Balance sheet. This simple financial statement sums up the total of your assets, liabilities and capital.
  • Profit and loss statement. Usually covering a fixed period or quarter, this statement measures your profits and losses by taking your gross profit (the balance of the cost of goods and the amount you sold them for) and subtracting your operating expenses.
  • Cash-flow statement. This statement accounts for all the money coming in and out of your business. This includes all purchases and expenses plus all money from sales, loans and investments.

What if I don’t have financial documents?

If you’re starting up a new business and can’t provide documentation, you will find it much harder to get a loan from a bank. You may need to opt for a personal loan or an unsecured cash loan. Sole traders starting new ventures may need to consider a loan from an online lender. These lenders often have less stringent requirements for business loans. It might also be worth looking for alternative funding sources, such as government grants for startups or angel investors.

What should I look at when comparing business loans?

Sole traders should consider the following when comparing business loans:

  • Repayments. Look at how much you will need to pay back each month (if it’s a monthly repayment loan) and work out how much you will pay over the life of the loan. Evaluate your profits, losses and expenses as accurately as possible and work out how much you can afford to repay.
  • Flexibility. Having the flexibility to pay back a loan in different ways is attractive for some sole traders. Knowing you can extend a loan’s terms or negotiate further funds is also an important consideration.
  • Interest rates. Consider if the interest rate is fixed or variable and calculate how much you’ll pay in interest over the loan period. Locking in a fixed rate is better for stable planning but a variable rate can go down as well as up.
  • Loan terms. The length of a loan is an important consideration. A one-year loan might be useful if your business has landed a major, long-term project. But if you need cash to just cover a shortage for the month, you’ll want to consider a range of short term loans.
  • Fees. In addition to repayments and interest rates, many lenders charge establishing fees and ongoing account fees.

I have a few more questions about getting a business loan as a sole trader

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