Self employed loans are business finance for sole traders and other self-employed people with no limited company. A sole trader can usually apply, subject to status and lender criteria. The key difference is liability: a sole trader has unlimited liability, so the owner is personally responsible for all of the business’s debts, and the lender will look at the owner’s personal credit file.
At a glance
- Sole trader liability
- Unlimited: the owner is personally responsible for all business debts
- Start Up Loans, amount
- Up to £25,000, as an unsecured personal loan
- Start Up Loans, rate and term
- Fixed 7.5% a year, repaid over 1–5 years
- Start Up Loans, who
- Starting a business or trading for less than 60 months
- FCA consumer credit perimeter
- Business lending of £25,000 or less to sole traders and small partnerships
- Self Assessment
- Register if you earn more than £1,000 in a tax year
Can a sole trader get a business loan?
Yes, a sole trader can apply for a business loan, and a range of finance types are open to self-employed people. Whether a particular lender says yes depends on status and lender criteria, and every lender sets its own.
What changes is the structure. A limited company is a separate legal entity, so a lender assesses the company and may then ask a director to back it with a personal guarantee. A sole trader has no such separation, so the lender is in effect lending to you. Our guide to what a sole trader is covers the basics if you are still setting up.
What does being a sole trader mean for borrowing?
It means you are personally liable for what the business owes. GOV.UK says sole trader businesses have “unlimited liability”, which means owners are personally responsible for all of the debts of the business.
In practice that has three effects. The lender will check your personal credit file, because you and the business are the same borrower. Your personal assets are exposed if the business cannot repay. And a missed payment can show on your own record, not a company’s.
A limited company works differently: GOV.UK says its owners are responsible for business debts only up to the value of their financial investment, although a personal guarantee can override that protection. We compare the two structures in sole trader vs limited company.
Which types of finance suit sole traders?
Sole traders can use most of the same finance as other businesses, and the right one depends on what the money is for and what the business owns.
| Option | How it works | Worth knowing for sole traders |
|---|---|---|
| Unsecured business loan | A lump sum repaid in instalments, with no asset put up as security | The British Business Bank says unsecured loans are often easier to access for small business owners, start-ups and sole traders who do not have business assets, but tend to carry higher interest rates than secured loans |
| Secured loan | Backed by property or other assets you own | The asset is at risk if you cannot repay |
| Asset finance | Funds a vehicle or equipment, usually with that asset as security | Often a natural fit for tools, vans and machinery |
| Invoice finance | An advance against invoices customers have not yet paid | UK Finance describes sole traders among typical users of factoring |
| Merchant cash advance | An advance repaid from card takings | Only suits businesses that take card payments |
| Start Up Loan | A government-backed personal loan for new businesses | See the next section for the scheme’s published terms |
You can see which lenders work in each area in our directory of business lenders.
What is a Start Up Loan, and is it only for new businesses?
A Start Up Loan is a government-backed, unsecured personal loan for people starting a business or trading for less than 60 months, so it suits younger sole-trader businesses but not established ones.
- Borrow up to £25,000
- Fixed interest rate of 7.5% a year
- Repay over 1–5 years
- Includes 12 months of free mentoring, with help writing business plans and cash flow forecasts
- The scheme’s site states there are no fees for arranging the loan or paying it back early
The scheme carries out a personal credit check with a credit reference agency and weighs the strength and viability of the business using your business plan, cash flow forecast and a personal survival budget. It is a personal loan, so you are personally liable for it. Some purposes are excluded, so check the scheme’s eligibility page before assuming it covers what you need. Our guide to start up business loans compares it with the other routes.
Does the FCA regulate loans to sole traders?
Sometimes. The FCA says its work covers business lending of £25,000 or less to sole traders and small partnerships, but not to limited companies, because that activity falls within the consumer credit regulatory perimeter.
Its own example is that a £20,000 business loan to a sole trader may fall within the perimeter, whereas the same loan to a limited company would not, and that business lending above £25,000 would generally fall outside it. Whether a given agreement is regulated is a legal question about its exact terms, so ask the lender or take legal advice rather than assuming.
What do lenders look at when you are self-employed?
Lenders look at whether the business can afford the repayments and at your credit history, and the evidence they ask for varies by lender and product.
- Your personal credit file. The Information Commissioner’s Office says credit reference agencies give lenders information to help decide whether to offer credit, and files include county court judgments and insolvency data.
- How the business trades: its history, takings and costs, and the plan for the money.
- What you already owe, and whether the new repayment fits alongside it.
- Security or a guarantee, where the product involves one.
Keeping proper records helps. GOV.UK says you must keep records when you start trading, and you must register for Self Assessment as a sole trader if you earn more than £1,000 in a tax year (6 April to 5 April). If a past judgment is on your file, our guide to what a CCJ is explains how long it stays. And if your credit history is weak, see our guide to business loans with bad credit.
What are the risks of borrowing as a sole trader?
The main risk is that the debt is yours personally, so if the business cannot repay, your own assets and credit record are on the line.
A sole trader is personally responsible for all of the business’s debts. If you cannot repay, a secured loan puts the asset at risk, and GOV.UK says only individuals can become bankrupt, so a sole trader’s debts can lead to personal bankruptcy.
- Do not borrow more than the business can service from its normal takings, including in a slow month.
- Treat the repayment as a fixed cost in your cash flow forecast.
- Check any security you are giving, and take legal advice if you are asked to put up your home.
- If repayments become difficult, act early: GOV.UK sets out the options for dealing with debts, and MoneyHelper offers free debt advice.
Compare more than the headline rate when choosing between offers. Our guide to comparing business lenders shows what to put side by side.
Would a limited company make borrowing easier?
Not necessarily. A limited company gives the owners limited liability, which separates personal and business debts, but lenders may still ask directors for personal guarantees, so the protection is not automatic.
Structure is also a tax and legal decision, and changing it has costs and consequences beyond borrowing. Ask an accountant before moving, and do not change structure only to qualify for a loan.
Where does Capzy fit in?
Capzy is a credit broker, not a lender, and is paid by the lender. We introduce sole traders and other businesses to lenders offering unsecured, secured and asset finance, and set out what comes back so you can compare it.
You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. We do not arrange Start Up Loans, which are applied for through the scheme itself, and we do not give tax, legal or accounting advice.
Partnerships and other self-employed arrangements are treated differently from sole traders, so check GOV.UK or ask an accountant.
Sources
- Set up as a sole trader: step by step, GOV.UK
- Set up a private limited company, GOV.UK
- Start Up Loans, Start Up Loans, British Business Bank
- Am I eligible?, Start Up Loans, British Business Bank
- FS26/2: Supporting SME access to finance, Financial Conduct Authority
- Guide to personal guarantees for business borrowing, British Business Bank
- Credit, Information Commissioner’s Office (ICO)
- The Standards Framework for Invoice Finance and Asset-Based Lending, UK Finance
- Becoming bankrupt, GOV.UK
- Options for dealing with your debts, GOV.UK
Capzy is a credit broker, not a lender. We get paid by the lender. This page is general information, not financial, tax or legal advice. Finance is subject to status, lender criteria and affordability; rates and terms depend on your circumstances.