If you're a sole trader, you might come up against a few barriers when it comes to finding suitable business funding. Although many alternative finance (Altfi) providers tend to lend over £25,000 to sole traders, there are other lenders who'll provide a few hundred or few thousand. The likes of peer-to-peer lending, specialist SME lenders and government funding schemes can all be sources of money for sole traders.
Best loans for sole traders
Firstly, it’s important to know that as a sole trader, you'll probably be asked to provide a personal guarantee against a loan. This provides the lender with assurance that they'll be able to recover the money.
Secured and unsecured loans
Secured and unsecured loans are both possibilities - with the first you'll need to provide company assets as security, but that's not required for the latter. Which ever you choose, you could be also asked for a personal guarantee. Also, an unsecured loan is ideal for short-term lending; it’s helpful for easing cash flow when you’re waiting for customers to pay invoices for example. It's also typically easier to apply for.
If you’re a sole trader in retail or e-commerce, or you operate a seasonal business, the revenue advance option could be perfect. This is only offered by Fleximize in the UK, and again, there's a lower lending limit. But it's a very flexible form of business financing – it doesn’t tie you down to paying back a set amount each month, which could cause problems if your income dips.
Let’s say you run a toy shop and you need to prepare for a spike in business at Christmas. Essentially, you need to make sure you’ve got the right stock ahead of the festive shopping rush. Well, the revenue advance – only available through Fleximize in the UK – lets you repay only what you can afford. So if your monthly income goes down, so do your loan repayments. If it rises, your repayment also increases. You simply repay each month until you’ve paid off the agreed amount, plus the lender’s interest rate.
Other sources of sole trader funding
More good news for sole traders: you can also go to peer-to-peer (P2P) platforms like Funding Circle, Ratesetter and Zopa to borrow money from investors. Again, check their minimum borrowing thresholds for sole traders.
Basically, P2P lending – or debt crowdfunding – lets investors lend you money via an online platform. Even if they just lend a small amount each, when a large number people are contributing, the amount could add up, possibly resulting in hundreds of thousands of pounds.
There’s a lot of competition among small businesses on P2P sites, so you’ll need a great idea and a compelling pitch to attract investors. But if you’ve got something truly innovative and unique, this could be the right choice for you.
Researching business loans in the UK
Below are key online search tools designed to help sole traders and other SMEs find financing:
If you’re specifically looking for funding that you don’t need to pay back, read about small business grants. Otherwise, there’s plenty more information on business funding like reward crowdfunding, pension-led financing and invoice discounting in The Ultimate Guide to Business Funding.
Thinking of going limited?
Well, in that case you could qualify for smaller loans from Fleximize. Your options include applying for the new, innovative funding solution – the Flexipay Card. You only need to be trading for a little as one day as a limited company to be eligible for the prepaid MasterCard® card.
Information on limited company loans can be found here.
If you want to apply for a sole trader loan of more than £25,000, Fleximize might be able to help. Give our experienced team a call on 0207 100 0110, or apply now by clicking on the button below.