This guide is designed to help self-employed business owners understand their options, the criteria lenders look at, and how to improve your chances of getting approved for a business loan.
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Being self-employed comes with freedom and flexibility, but it also brings challenges—especially when it comes to securing funding. Whether you’re a sole trader, running a partnership, or heading a small limited company, you’ll probably find yourself looking for finance at some point, whether it’s to grow your business, manage cash flow, or cover unexpected expenses.
Getting a loan for your business when you’re self-employed will usually involve extra considerations, but alternative lenders like iwoca are helping to expand the options available.
Unlike personal loans, which may focus on your credit history as an individual, small business loans look at both your business performance and your personal creditworthiness. These loans can be used for various purposes—like purchasing equipment, managing day-to-day expenses, or scaling up your operations.
Lenders often look for proof that your business is stable enough to handle loan repayments, but they also consider how long you’ve been trading, your income, and your overall financial health.
Depending on how you’ve set up your self-employed business, lenders will assess your risk differently and offer loan terms accordingly.
A sole trader is the simplest and most straightforward way to operate as a self-employed person. As a sole trader, you’re the sole owner and decision-maker of your business. However, this structure also means that you are personally liable for any loans or debts the business incurs.
This personal liability can make borrowing riskier, as lenders will consider both your personal credit score and business income when evaluating loan applications. Sole trader loans are often based on the business's income, but personal assets (like your home) may be at risk if you default on repayments.
In a partnership, two or more individuals share ownership of the business. Each partner is responsible for the profits, losses, and debts according to their share in the business. Lenders look at the financial standing of each partner when assessing a loan application. The amount you can borrow, as well as the terms, will often be proportional to the partnership agreement—the division of ownership and responsibility.
A limited company is a separate legal entity from its owners, meaning the business itself is responsible for any debts or loans, rather than the individual owners. This structure can make it easier to secure limited company loans with larger amounts and better terms, as the risk is generally lower for the business owner. Lenders assess the company’s financials—such as profit margins, cash flow, and projected earnings—rather than relying solely on the personal financial history of the owners.
Self-employed businesses – especially limited companies – can access a wide range of financing products. The right one for your business will depend on what you need the money for, and how you plan to repay it.
Unsecured business loans don’t require you to offer any assets (like property or equipment) as collateral. They’re typically easier to access for smaller amounts, though lenders may charge higher interest rates to offset their risk. Unsecured loans are ideal for businesses that need quick capital but don’t want to tie up their assets.
A secured loan is backed by an asset, such as your business premises, vehicle, or equipment. Since this reduces the lender's risk, these loans usually come with lower interest rates and allow you to borrow larger amounts. However, if you default, the lender can claim the asset.
Start-up loans backed by the government are available for newer businesses. These loans range from £500 to £25,000, with a fixed 6% interest rate. Along with the loan, you get free mentoring to help guide your business growth.
Invoice financing is a way to unlock cash that’s tied up in unpaid invoices. The lender advances a portion of the invoice's value, giving you access to funds before the customer has paid. This option is useful if your business faces cash flow gaps due to longer payment terms.
For businesses that accept card payments, a merchant cash advance allows you to borrow against your future sales. Repayments are made automatically through a percentage of daily card transactions, making this a flexible option if your business income fluctuates.
Qualifying for a loan as a self-employed business owner can be a little more challenging, but it's definitely doable.
Here’s what lenders will likely look for:
To understand how to get a business loan as a self-employed individual, consider the following steps:
For self-employed business owners, accessing fast and flexible finance can make all the difference when it comes to managing cash flow, unexpected costs or expanding your operations.
iwoca’s Flexi-Loan is designed to meet the needs of small business owners across a variety of sectors, with transparent and accessible finance.
Yes, startups can still get loans, with a range of start up loans available, including secured and unsecured loans, merchant cash advances and invoice finance. The key is in understanding your needs and making sure that you’re in a position to effectively manage the debt.
Lenders will generally ask for the following:
Yes, but your options may be more limited. Secured loans or guarantor loans are often better for individuals with poor credit. You may also face higher interest rates due to the increased risk.
As a sole trader, you're personally responsible for repaying the loan, meaning your personal and business finances are tied together. For a limited company, the loan is taken out in the company’s name, separating your personal liability from the business. This can sometimes make it easier to secure larger loans.
Some lenders offer alternative options like merchant cash advances or invoice financing, which allow you to borrow against future earnings. These can be good choices if you struggle to prove consistent income through traditional documents.
