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Sole Trader Loans

You’ll need a solid business plan if you’re starting a new business as a sole trader.

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As a sole trader, getting a business loan may seem difficult. But there are a number of loans you can apply for. There are a number of ways you can boost your application. In general, established sole traders find it easier to get approved for a business loan. If you're a sole trader starting a new business, you will need a sound business plan.

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 tricky, 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

1 - 4 of 4
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Lumi Unsecured Business Loan
$5,000
$300,000
3 months to 3 years
2.5% establishment fee
Apply for up to $300,000 from Lumi and benefit from short loan terms, no early repayment fees and once approved receive your funds in just one business day. Note: Loans settled by 30 June 2022 are eligible for a no repayment period for the first 6 weeks of the loan.
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.
Moula Business Loan
$5,000
$250,000
1 to 2 years
2% Establishment fee
A loan of up to $250,000 that can be approved and funded within 24 hours. Available to businesses with 6+ months operating history and $5,000+ monthly sales.
Prospa Business Loan
$5,000
$500,000
3 months to 3 years
3% origination fee
Small business loans are available from $5,000 - $500,000 on terms of up to 3 years. At least six months trading history and a monthly turnover from $5,000 is necessary. Note: Loans approved by 30 June 2022 are eligible for no repayments for the first 8 weeks of their term.
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What type of loans can I apply for as a sole trader?

There are a number of loans you can apply for as a sole trader. These include:

Type of loanLoan amountsFeatures and repaymentsPros and cons
Business overdraftLoan 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
  • Unsecured loan
  • Useful when your funds run low
  • Can only access funds once other accounts are depleted
  • Interest rates can be high
  • Requires an existing bank account
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
  • If you need an ongoing source of credit, this provides credit on a revolving basis.
  • You pay interest only on what you use.
  • Interest rates can be high.
  • With only a minimum repayment expected, you could carry your debt indefinitely.
Secured business loansLoan 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.
  • Can provide your business with a large amount of cash to use for various business expenses
  • Lower interest rates as the loan is secured
    • Your asset can be at risk if you don't meet your repayments.
    • You'll be taking on a large debt.
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.
  • Usually approved quickly
  • A quick source of cash
  • More expensive than secured loans
  • Smaller borrowing amounts than secured loans.
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.
  • You can bridge cash flow shortages by using funds already owed to you.
  • Not an option for a new business with no invoices, but established businesses can benefit.
  • Open to bad credit borrowers too.

How do I know which business loan is right for me?

If you're not sure what type of loan is right for you, these questions can help narrow down your options:

  • What do you need the loan funds for? Considering what you need the funds for will allow you to find the funding solution that best suits your business. If you need funds for commercial real estate, a line of credit or overdraft will be unsuitable. If you have an asset and need the funds for multiple business purposes, then a secured loan might suit you better. You should consider a loan that will allow you to use the funds in a way that can fulfil your business needs.
  • Do you want the funds in a lump sum or on an ongoing basis? If you want the loan funds in a single release, then a term loan is more suitable. But if you want funds on an ongoing basis, overdrafts or lines of credit may be more suitable.
  • How much do you need to borrow? Each loan has its own maximum and minimum borrowing amounts. Look at the borrowing amounts to decide whether the loan will adequately service your needs. Make sure you check that it falls within the range you require.
  • Do you want the option to access more credit? Topping up a fixed amount term loan is difficult. It usually involves having to take out another loan. If you think you might need top ups, opt for an overdraft or line of credit.
  • Can you afford the loan? Some loans are more expensive than others. You need to consider whether you can afford the loan and that it sits comfortably within your budget. If you think you may have difficulty paying it back, you may want to consider a cheaper option.
  • Are you eligible for the loan? Some loans may have attractive fees and terms, but you may not be eligible to apply. To avoid rejection, ensure you meet the minimum eligibility criteria. Each lender has a different criteria, so be sure to check all your nominated options and ensure you meet them.

How do I compare business loans for sole traders?

Here's what you need to keep in mind when comparing business loans:

  • Interest, fees and comparison rates. Comparing interest rates is a good way to check if the loan is competitive. But as important as it is to compare interest rates, you should also keep an eye on fees and the comparison rate. The latter takes into account interest and the fees you will be charged, and will give you an indication of the true cost of the loan. Some loans may come with low interest but high fees, so this will drive up the cost of your loan. Keeping an eye out on fees, interest and the comparison rate can help you find a loan that's low cost.
  • Loan term. Your loan term is how long you have to repay the loan. The length of the term will affect how high your repayments are. That is, with a short term, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees. You can use a business loan calculator to get an idea of what your repayments will be like with different loan terms.
  • Loan amount. Lenders have set minimum and maximum lending amounts. Make sure the amount you need is on offer from the lender.
  • Loan features. If there are specific loan features you would like to have, make sure to check which loans offer these features. This can include early repayments, early exit without penalty and redraw facilities.
  • Turnaround time. Check how long the lender takes to approve the loan and transfer the funds to you. If you need your funds within a certain time, make sure the lender is able to accommodate this.

What can I use a sole trader business loan for?

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

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

As an established business owner, here's what you'll need to consider:

  • Financials. As an established business, you should have records highlighting your profits and losses and at least 2 years of tax returns. 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?
  • 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 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 business, you may find it difficult to get financing. But there are a number of ways you can improve your chances. Here's what you need to keep in mind:

  • Business plan. A detailed, clear business plan is reassuring to a lender. Be sure to include an analysis of your competition, your future plans and cash-flow predictions.
  • Security. 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 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 résumé 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 documents do I need to submit to the lender?

This will vary depending on the lender, but generally you'll have to 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 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 can't provide financial documents for some reason, there are still options available. This includes low doc business loans. There are peer-to-peer business loans, which offer risk based financing. Another option is a personal loan. You can apply for a personal loan from established lenders like banks or from online lenders.

Can I take out a personal loan for business purposes?

As a sole trader, this could be an option, but there are a number of differences between the two. These include:

Personal loans

  • Smaller borrowing amounts.
  • Interest rates may be higher.
  • Can't claim it as a business expense.
  • Flexible use of funds. You can use it for whatever you want.
  • Easy applications.

Business loans

  • Larger borrowing amounts.
  • Interest rates may be lower.
  • More documentation is needed to apply.
  • You can only use the funds for business purposes.
  • Can claim as a business expense.

What should I avoid when applying for a small business loan?

  • Choosing the wrong type of finance. Picking the wrong loan for your business could be costly to the success of your business. You should determine what your financing needs are and whether the loan suits them before applying. If you're unsure, contact an expert, such as a finance broker.
  • Getting into debt you cannot afford. Check the cost of the loan and make sure you can afford it. You should be able to comfortably include your repayments in your budget. You should avoid borrowing more than you need.
  • Unlicensed lenders. Some loans can be too good to be true, while some lenders can be predatory. It's best to check if the lender is legitimate and what its history is. You should check the lender's website and make sure it's a reputable company and is registered with ASIC. The lender should be easy to contact. Going a step further and checking out reviews online will give you an idea of what to expect from the lender.
  • Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score, making it harder for you to get a loan in the future. Select a single loan that you're eligible for and that suits your needs and apply with that lender.
  • Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. For secured loans, your asset could be repossessed if you default.

How can I apply for a sole trader business loan?

🤔 Work out what type of loan your business needs, how much you need to borrow and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table above.
✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.

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