Specialist Business Loans for Sole Traders and Trade Companies

Business Loans Explained

A sole trader business loan is finance taken out by a self-employed person, in their own name, to fund the running or the growth of their trade business. For a plumber, electrician, roofer or groundworker who has never registered a limited company, that is the ordinary route to business borrowing, and it works differently from lending to a registered company. We are a broker. We compare lenders and arrange the loan on your behalf; we do not lend our own money.

Most tradesmen ask the same three things first: whether sole traders can borrow at all, what counts as proof of income when there is no payslip, and what happens if the credit file has marks on it. Below we answer those, then cover secured and unsecured business loans, CIS subcontractors, personal guarantees, Start Up Loans and how much a small business can realistically borrow.

Can a sole trader get a business loan?

A sole trader can get a business loan, and most mainstream lenders in the UK treat sole trader loans as a standard product rather than an exception. The difference is legal rather than practical: a sole trader and their business are the same legal person, so the borrowing sits with you personally even when the money is spent entirely on the business.

That single fact drives everything else about how a sole trader loan is assessed. There is no set of company accounts at Companies House for a lender to pull, so underwriters look at your self-assessment tax returns, your bank statements and your trading history instead. There is also no limited liability shielding you, which means lenders are often willing to lend to sole traders at a similar level to a small limited company, because the personal recourse is already built in.

In our experience the applications that struggle are not the ones without a company registration. They are the ones with three months of trading, no accounts and a thin credit file. Two years of returns and a steady current account make a small business eligible for most business loans on the market.

What is the difference between unsecured and secured business loans?

An unsecured business loan is borrowing granted against your trading performance rather than against a named asset. Nothing is charged to your van, your tools or your home, so approval rests on turnover, bank conduct and credit history. Unsecured business loans are the most common product we arrange for tradesmen because most sole traders have strong cash generation and few assets they want to risk.

A secured loan puts a charge over something you own, usually property, occasionally plant or vehicles. Security lowers the lender's risk, so the interest rate is normally lower and the amount available larger, but the asset is genuinely at stake if repayments stop. We rarely suggest securing a family home for working capital, more often for a planned investment such as buying a yard or workshop.

The alternatives get overlooked. If the funding is for a specific item of kit or a vehicle, asset finance or hire purchase is usually cheaper than a general business loan, because the item itself acts as security. Invoice finance and merchant cash advances suit other cashflow shapes. We will say so when one of those is the better structure for your small business.

How do you prove your income when you are self-employed?

Proof of income for a self-employed applicant is the evidence a lender uses to establish sustainable profit rather than gross turnover. The core documents are your SA302 tax calculation and the corresponding tax year overview from HMRC, usually for the last two years, together with three to six months of business bank statements.

Some lenders also accept an accountant's certificate or prepared accounts, and a growing number simply read your bank feed through open banking, which removes most of the paperwork. Where your accounts are dated and recent trading is much stronger, the bank statements do the heavy lifting.

One point catches out a lot of tradesmen. Lenders assess net profit after expenses, not the money landing in the account. Aggressive expense claims that cut your tax bill also cut the income figure a lender can work with, so if you plan to borrow in the next year or two, discuss that balance with your accountant before the return is filed.

Can CIS subcontractors get finance as sole traders?

CIS subcontractors can borrow as sole traders, and the Construction Industry Scheme deduction is not a barrier once a lender understands it. Under CIS a contractor deducts 20% from your labour payments, or 30% if you are not registered, and pays it to HMRC against your eventual tax bill. Your bank statements therefore show net receipts that understate what you actually earned.

Lenders who work with construction gross those figures back up using your CIS deduction statements and tax return. Lenders who do not sometimes read the same statements as a smaller business than it is. That difference in underwriting knowledge often explains why a subcontractor is declined by their own bank and approved elsewhere on identical numbers.

Keep your monthly CIS statements from every contractor you work for. They are the cleanest proof of gross income a construction sole trader can produce, and they routinely support a higher borrowing figure than bank statements alone.

Will I have to give a personal guarantee?

A personal guarantee is a written promise that the borrower will settle the debt from personal funds if the business cannot. For a sole trader the guarantee is largely academic, because you and the business are already the same legal entity and your personal assets are exposed to the debt from the outset.

It matters more if you later incorporate. Lending to a limited company is a separate legal obligation, so lenders commonly ask a director to sign a personal guarantee to bridge that gap. Directors of newly formed limited companies are often surprised to find they are personally on the hook anyway for the first few years of trading.

For a sole trader the implication is about protection rather than paperwork. With no corporate wrapper, only borrow what the business can service from its normal work, not from the best month you have ever had. We show you the monthly repayment against your actual trading pattern before you commit.

Are Start Up Loans an option for a new trade business?

Start Up Loans are government-backed personal loans delivered through the British Business Bank for people starting or growing a young business. They run from £500 to £25,000 at a fixed rate of 6%, with terms of one to five years and free mentoring included. They are personal loans in law, even though the funding must be used for business purposes.

For a tradesman going out on their own, that scheme is often the best available funding in the first year, because commercial lenders want trading history that a new business simply does not have. Approval rests on your business plan and cash flow forecast rather than years of accounts, and there are no arrangement fees or early repayment charges.

The limits are real. One applicant can borrow up to £25,000, and several people in the same business can each apply, but the scheme will not fund a van and a full set of plant at once. After six to twelve months of trading, commercial business loans usually open up and we can compare those against what you already hold.

Can you get a sole trader business loan with bad credit or a CCJ?

Bad credit narrows the market rather than closing it. Lenders who specialise in adverse credit will look past defaults, missed payments and satisfied county court judgments if your current trading is sound, and they weight the last six months of bank conduct far more heavily than something that happened three years ago.

What they look for is a pattern. Consistent income, no unauthorised overdraft use and no returned direct debits carry a small business a long way even with historic damage on file. An unsatisfied CCJ is the hardest item to work around, so settling it before you apply usually changes the answer. Expect a higher interest rate or a smaller amount than a clean file would attract.

Be wary of anyone advertising sole trader loans with no credit check. Every responsible UK lender runs a credit search before approving business loans. What we can do is check your profile against lender criteria first, so you are not collecting hard searches on applications that were never going to be approved.

How much can a trade business borrow, and what does it cost?

As a working rule, lenders will consider up to around a quarter of your annual turnover on an unsecured business loan, and up to roughly half of it where the trading history is long and the credit profile is clean. Secured lending goes further because the asset supports the risk. Those are starting points for a conversation, not a promise, and every case is assessed on its own merits.

Cost depends on the same variables: how long you have traded, your credit history, the term, and whether the loan is secured. Terms typically run from six months to five years. A shorter term costs less in total interest but demands a higher monthly repayment, and for seasonal trade work it is usually better to take a term you can comfortably service than to squeeze the schedule.

There is a regulatory point worth knowing. Business lending to limited companies is generally unregulated, while borrowing by a sole trader can fall within Financial Conduct Authority consumer credit rules where the amount is £25,000 or less. That can mean additional protections on smaller sole trader loans, and it is one of the things we check on your behalf when we compare products.