Business Loans for Sole Trader

Yes, Sole Traders can get loans. If you are an established business then you may find it easier but, If you’re just starting out, it’s still possible.
*iSelect does not arrange business loans products, but can refer you to Valiant who does provide such services and can help you compare business loan products. Valiant Finance Pty Ltd (ABN 95 606 560 150) holds Australian Credit Licence 500 888. iSelect and Valiant do not compare all providers in the market, or all products offered by all providers. If you click through to the Valiant website and acquire a business loan through Valiant, iSelect earns a commission from Valiant. Learn more

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This article will run you through some options for sole trader loans, some things you may want to watch out for, and some things that could help you get approved.

Some things you may wan to consider when taking out a business loan for a sole trader?

Whether you’re just starting out in business, or you are established and have plans for growth, there are many reasons that you may be seeking a loan as a sole trader. These reasons can include:

  • New Business space: Whether it’s an office, a factory or a storage space, this could be a big expense.
  • Company vehicle: You might be a sole trader, so you might need to be mobile. A company van or car maybe another expense you might need to finance.
  • Product/Service development: Some investment in your business offering may be needed when you start up, whether that’s a product or a service you will be offering.
  • Money to live on: Otherwise known as a salary. If you’re just starting up, you may have a bit of a lag before you’re bringing in the money necessary to pay yourself.
  • Handle a sudden influx of business: You might need extra stock or some part time staff. A loan may be on option you have considered..
  • Expansion plans: Maybe it’s time to move to the next stage and you need money to fund your plans.

What loan options do I have as a sole trader?

There are different types of loans for sole traders, some of which depend on what you’re using the loan for, other options can vary with your individual circumstances, trading history and assets etc. Some of the loan options you could consider include:

Secured Loans

A secured loan Is when the money you borrow is secured against an asset which you provide. In the case of business machinery or vehicle, it can often be the machinery or vehicle which is the security on the loan.

There are some lenders however who may consider other security against a loan, such as your home or other asset, like jewellery, depending on the loan value.

What are the benefits of a secured loan?

  • Lower interest rates and fees: Because your lender has the security of an asset that you have put up as collateral, they can more easily recover their losses should you default on your loan (by selling the asset). As a result, the risk to the lender is lower, and the fees and interest rates they are prepared to charge are often lower too.
  • Higher Loan amounts: Because of the lower risk of a secured loan, the lenders are more likely to be prepared to offer higher amounts as a loan. Again, the security allows them to easily recover their losses in the event of a default.
  • Longer terms and Lower monthly repayments: Secured loans are often over longer terms than unsecured business loans, so your monthly repayments can be spread out over a longer time, potentially making your regular repayments lower.
  • Easier to qualify: Providing you have the necessary asset to offer as security, it is often easier and quicker to get approved for a secured business loan than an unsecured one.

Are there any disadvantages to a secured loan?

There is one major disadvantage to a secured loan:

  • Your asset is at risk if you default: The lender has the ability to recoup their losses by selling the security. If your asset is important for your business, then losing it could hurt your ability to continue trading.

Unsecured Loans.

If you don’t have an asset, or you don’t want to put one at risk, then you could apply for an unsecured loan.

Instead of being approved based partially on the security you’re providing, an unsecured loan can be based more on your personal and business credit history, as well as the financial health of your business.

Benefits of an unsecured business loan:

  • No security at risk
  • Easy to apply for: As long as you have your financials and a good credit score, you don’t need to go through the process of getting your assets valued as collateral.
  • Get cash quickly. : Depending on the lender an unsecured business loans can potentially be funded within 48 or even 24 hours, due to the ease of application.
  • Build trust with a lender: Building trust can make it easier if you’re hoping to access more funds in the future.

Disadvantages of unsecured business loans:

  • Higher interest rate: The costs of an unsecured loan tend to be higher than with a secured loan.
  • You need a good credit history: Getting approved can be tricky if you don’t have a good credit history or good business financials.
  • Smaller amounts: Generally lenders will be prepared to lend you less if the loan is not secured.
  • Shorter terms: Lenders are more likely to want their money back more quickly, if it’s not secured by an asset, because of the risk they’re taking.
  • Penalty fees: The penalties for missing payments, or for wanting to pay the loan out sooner, can be great, so check with your lender.
  • Personal Liability: If the loan doesn’t get paid off, guess who’s liable to meet the costs yep, you, the business owner.

What things should I think about before applying for a loan?

When it comes to securing business loan financing, there’s a range of factors to consider. Below we’ve set out a range of considerations, based on whether you are a sole trader with an established business, or just getting started:

If you’re an established business:

  • Business tax returns: Together with a couple of years of business accounts, these could hopefully show a lender that a business is reliable borrower.
  • Cash flow : If cash flow isn’t in a good positive state, it may be difficult to service a long-term loan.
  • Upcoming costs: Your business will have some fixed costs, make sure you factor these into your calculations when working out what you can pay back to a lender.
  • Asset for security: Do you have any assets which you can use to get a secured loan?

If you’re not established?

It’s a harder job to get a loan if you’re just starting out, but not impossible. Here are some things that you can do to potentially help you get a loan approved:

  • Have a good business plan: A detailed, professional, analytical business plan could improve your eligibility.
  • A good personal credit history: Always a positive sign for lenders.
  • Security. If you have collateral, this could be a big help.

What should I look out for when comparing loans for sole traders?

Here are just some of the things that are worth considering when comparing business loan products. :

  • Interest rate: And remember, even a small variation in interest rate can make a lot of difference over a long term.
  • Repayment schedule: Work out your regular repayments and how they may fit into your business expenses.
  • Fixed or Variable: Do you want the certainty of fixed rates, or the flexibility of variable?
  • Pay back options: Does the loan allow you to cut your loan term by making extra repayments?
  • Long or short term loan: Depending on what exactly you need the loan for could help you decide whether you want to take on a longer or shorter term loan.
  • Fees: Check these with individual lenders. On top of repayments and interest rates, you may be getting charged ongoing account fees as well as a set up fee.

How do I find a sole trader loan that is suitable for me?

iSelect has partnered with Valiant to help you find a sole trader loan that might be right for you. Click here to get started online today!

Last Updated: 06/07/2022