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Sole Trader Business Loans

Best Business Loans for Sole Traders

Finding the right sole trader business loan can help you manage cash flow, fund new equipment or support growth. Compare loans tailored to sole traders and check your eligibility without affecting your credit score.

Getting a sole trader business loan could provide the funding your business needs to grow or give you some financial breathing space.

Can sole traders get business loans?

Yes, sole traders can get business loans. While lenders sometimes see sole traders as higher risk because there’s no legal separation between personal and business finances, there are still plenty of options available.

Like most other types of business loans, eligibility criteria vary between lenders. Some may focus on your personal credit history, while others rely more heavily on business turnover or trading history. Even if one lender says no, you could still be accepted elsewhere.

» COMPARE: Best business loans

What is a sole trader business loan?

A sole trader loan is a type of business finance designed for people who run their own business as individuals. This includes many freelancers, contractors and self-employed professionals. This is an important distinction from businesses that are registered as a limited company, which creates a legal separation between a business and its owners.

Because sole traders are personally responsible for their business debts, lenders may look closely at both personal and business finances. However, these loans can still be used for the same purposes as any other type of business loan, from making purchases to managing cash flow. For example, a freelance designer might use a sole trader loan to upgrade equipment, while a sole trader tradesperson might use it to fund tools or cover upfront material costs.

» MORE: Sole trader or limited company?

Sole Trader insights

Sole traders make up the majority of the UK’s business landscape. According to the Federation of Small Business, there were 3.2 million sole proprietorships in the UK in 2024, which makes up 57% of all UK private sector businesses.
IPSE reports that sole traders dominate in sectors which require high expertise and low overheads, including construction, transport, the creative industries, professional services and agriculture.
According to the Office for National Statistics, almost a third (32%) of self-employed workers work exclusively from home.
Many sole trader businesses are well established. Statistics from the Department for Business & Trade found that 44% have been trading for more than 20 years.
It’s common to combine traditional employment and self-employment: The Institute for Fiscal Studies found that 25% of sole traders do this.

Types of business loans available to sole traders

Sole trader business loans typically fall into two main categories: secured or unsecured.

Unsecured sole trader loans

An unsecured business loan doesn’t require you to use an asset (such as property or equipment) as collateral. This usually makes the application faster and simpler. However, many lenders will ask for a personal guarantee, meaning you’ll need to repay the loan personally if your business cannot.

Best for:

Short-term cash flow support.
Smaller borrowing amounts.
Faster decisions and funding.

» COMPARE: Unsecured business loans

Secured sole trader loans

A secured business loan requires you to put forward a business or personal asset as security. Because the lender has collateral, interest rates may be lower and borrowing limits higher. As a sole trader, the asset used could be your home or another valuable personal asset, which the lender may take if you don’t keep up repayments.

Best for:

Borrowers who don’t have strong credit scores.
Larger borrowing needs.
Lower rates or longer repayment terms.

Pros and cons of sole trader business loans

Advantages

Loans can be tailored specifically for sole traders.
Repayment terms can be flexible.
Can support growth, equipment purchases or expansion.
Useful for covering short-term costs or cash flow gaps.
Faster approval is possible, especially with unsecured loans.
Loan interest may be tax-deductible as a business expense.

Disadvantages

It may be harder for sole traders to access funds compared with limited companies.
You may need to provide a personal guarantee or security, putting your personal assets at risk.
Interest rates can be higher as lenders consider it more risky to lend to sole traders.
You may be offered smaller loan amounts as a result.
Lenders may require more personal financial information to assess your creditworthiness. loan amounts may be smaller for similar reasons

Am I eligible for a sole trader loan?

Eligibility varies between lenders, but common requirements include:

Being 18 or over.
Running a UK-based business.
Having evidence of a minimum income or turnover – the amount varies between lenders.
A minimum trading history (often 6-24 months, depending on lender).
A personal or business credit check.

Some lenders specialise in supporting new sole traders or those with imperfect credit, while others focus on established businesses. Being declined by one lender doesn’t mean you won’t be eligible elsewhere.

What you need to apply

You’ll usually need to provide:

Proof of ID and address.
Business bank statements.
Recent personal bank statements (for some lenders).
Proof of income or turnover.
A description of how you’ll use the loan.
Invoices or contracts if you’re self-employed or freelancing.

Preparing these documents in advance can speed up your application.

How to find sole trader business loans through NerdWallet UK

We can help you compare business loans tailored to sole traders, without affecting your credit score. Here’s how it works:

Answer a few quick questions about your business and what you’re looking for.
See your matched loan options instantly. We’ll check our panel of landers and find those you’re most likely to be eligible for.
Compare and apply with key details pre-filled, making the process quicker and easier.

» COMPARE: Find business loans for sole traders today

Yes, some lenders consider sole traders with newer businesses, so it’s worth checking which startup business loans are available.

It may be possible, but options may be more limited and interest rates higher. You are also more likely to need a personal guarantee or security. Some specialist lenders focus on supporting businesses with weaker credit profiles.

» MORE: Bad credit business loans

It can be easier to get a business loan as a limited company, simply because lenders believe them to be a less risky proposition. However, becoming a limited company isn’t right for everyone, and sole traders can still get business loans.

» MORE: Sole trader or limited company?

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