Sole Trader Business Loans

Name: Sole Trader Business Loans
Creator: Savvy
Published: 2022-01-14T13:34:50+10:30

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Written by , updated on July 26th, 2023

What are sole trader business loans?

Sole trader business loans are the same as any other loan offered to other, larger businesses. This may be unsecured finance in some cases, a finance type enabling you to borrow funds without affixing any of your personal or business assets as collateral for the small business loan. However, it’s important to note that these loans can sometimes be more difficult to get approved for as a sole trader, given that lenders will often deem businesses of this type to be too risky. This largely stems from their lower monthly and annual turnover and their smaller nature lending itself more to being closed down more easily.

As such, secured loans may be more suitable for you as a sole trader. This will involve putting up a valuable asset, such as your home, as collateral for the loan. The value of the asset you use to secure your loan will largely determine the loan amount you’re approved for, so using a more valuable asset may be the only way to gain approval for a larger amount should you need it. Alternatively, if you’re looking to buy a specific piece of machinery or equipment, equipment finance may be suitable for you, as it comes with lower interest rates and is designed to fill a specific purpose.

What if I can’t produce the financials required for my business loan?

It’s not unusual for sole traders to find themselves in a position where they’re unable to pull together all of the documents needed to help them qualify for a business loan. They’re somewhat disadvantaged by most lenders assessing them against the same criteria they use for larger businesses.

Fortunately, online lenders have introduced loan products which enable small operations to access the funds they need without financials. Many lenders will be willing to approve unsecured loans of up to $200,000 and beyond without requiring any access to your business’ financial statements. Instead, they’ll rely on bank statements, ABN/ACN and GST registration and personal ID. Of course, you’ll only be able to borrow up to your maximum borrowing power as determined by your lender’s assessment of your financial situation.

If you’re looking to take out a secured equipment finance deal and don’t have the financials needed, though, you’ll likely have to turn to a low doc business loan instead. In most cases, these would be sought due to a sole trader not having access to the required two years’ worth of tax returns. Low doc or no doc loans utilise various business financials in their place, such as BAS, profit and loss statements, business plans projecting future revenue and a declaration of overall revenue from an accountant.

Types of business loan

Unsecured business loans

The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.

Secured business loans

If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.

Small business loans

Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.

Low doc business loans

Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.

Lines of credit

A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.

Invoice finance

Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.

Equipment loans

A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.

Supply chain finance

With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.

Inventory finance

Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.

Overdraft facility

An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.

Cash flow loans

You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.

Why compare business loans through Savvy?

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It won't cost you a cent to compare a range of business loans through Savvy, enabling you to come back at any time.

Reputable lending partners

You can compare business loan offers through a range of trusted Australian lenders, giving you more confidence in the process.

Online comparison process

You can fill out our simple online form to generate business finance quotes tailored to your business' needs in minutes.

Top tips for maximising your sole trader loan approval chances

Compare as many lenders as you can

First and foremost, you should look to maximise the number of loans considered when comparing business finance offers. By doing so, you can more accurately narrow down your options to realistic lenders who offer products which suit your business’ requirements. Applying for the first loan you see will rarely result in securing the best available deal, nor is it likely to yield the smoothest application possible.

Ensure you meet eligibility criteria

Above all else, though, you should strive to meet the eligibility criteria set in place by lenders. Ultimately, this is the most important part of the process, as it’s very black and white: if you can’t meet these, you won’t be approved. The main factors here are minimum monthly turnover (as low as $5,000 per month) and overall trading time (as low as six months). If you don’t fit under these, you may have to look elsewhere.

Hold a strong, consistent cashflow record

Lenders always want to see businesses which have been able to steadily build a track record of comfortable and consistent revenue throughout their trading history. In this respect, the longer the trading history, the better, as businesses operating inside their first 12 months are seen as posing a greater risk overall. Of course, you can only borrow what your business can afford, so you should limit your application to an amount and terms which are reasonable for you.

Maintain or work on your business credit score

Another aspect of your business which lenders will look to in the application assessment process is its credit score (as well as your personal score). This is an indication of its creditworthiness and past record of servicing debts like other loans, bills and invoices to other businesses. Loans for self-employed businesses with bad credit do exist, but they’re much harder and more costly to obtain.

Frequently asked business loan questions by sole traders

What can I use business financing for?

Just about anything you like – whether you’re looking to fit out your business premises, add to its overall cashflow or help cover the cost of purchasing inventory, business finance can help you out. if you opt for equipment finance, however, your loan amount and potential usage will be tied to the purchase of the equipment itself, rather than making itself available for other miscellaneous needs.

Can I consolidate my debts with a business loan?

Yes – many businesses opt for loans to help them consolidate mounting debts. This is because not only does paying them off alongside your loan make your repayments easier to manage but it can also potentially save you a substantial amount of money. High-interest debts like business credit cards can increase your overall outlay significantly if you’re not careful, so taking out a business loan with a lower rate will help you reduce them.

Are there any government loans for sole traders?

Not really – while there are loans offered by Indigenous Business Australia to assist startup and established Indigenous small businesses (for which standard loans are also available), this isn’t the case for other sole traders. There are a variety of grants which you may be eligible to take out, however, so you should check the federal government website, as well as that of your state government, to find out more.

Is it better for traders to apply for personal loans instead?

Not necessarily – personal loans are seen as a convenient fix for individuals which provide a fast funding process and offer funds able to be used however you like. If your business doesn’t meet your lender’s eligibility criteria, a personal loan may be an option you could turn to. Additionally, if you want to take out a loan to cover both business and personal costs, you might pursue this type of loan. However, because business loans are designed for business and offer a greater borrowing range, they’re generally preferred.

Can I get a loan if I’m a sole trader with bad credit?

Yes – however, you’re likely to find it more difficult to do so if you’re looking for a bad credit loan as a sole trader. Not all lenders offer to finance businesses with bad credit scores, and those who do will generally limit this to an absolute maximum of $30,000 at a high interest rate.

Will I need to pay a deposit?

No – deposits aren’t a required part of business financing in Australia. You may find that an upfront, lump-sum contribution to the costs you need out of your business’ available revenue can help you in the long run, as reducing your loan size will in turn cut down on the interest you’re required to pay overall. You can see the impact of a deposit on the cost of your loan overall by using Savvy's business loan repayment calculator.