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How can a sole trader raise finance?

How can a sole trader raise finance?

As a sole trader, you more than likely need to raise some sort of capital to help get your business off the ground, purchase the necessary assets, and have sufficient working capital so that business payments can be made on time. At the end of the day, starting up a business as a sole trader can be very expensive.

While you do have the option of putting your own money into your business, many sole traders simply don’t have the personal finances to do so, or see using their own money as an unnecessary risk when there are so many financing options available in the UK.

In this article, we will have a look at the many ways that sole traders can raise finance. You may even come across an option that suits your needs perfectly.

Business loans

Business loans are probably one of the most popular ways of raising money as a sole trader. On inspection of your business plan and other business documents,  a bank or a private lender will typically send you a specified amount of money with terms that state you will need to pay it back over a specific time frame with interest. The two main types of business loans include:

  • Secured business loans – Collateral (house, car or shares) needs to be put up to secure the loan. If you fail to repay the loan, your assets could be forfeited.
  • Unsecured business loans – No collateral is required, but the value of the loan will be dependent on the borrower’s specific situation.

Business loans are usually seen as finance sources for medium or long-term use. There are many different types of business loans available in the UK, and you should definitely shop around before making a final decision.

Invoice financing

If you are a business that allows clients a large window for paying their invoices, invoice financing may be a great solution for you and to help tide you over until your clients pay their invoices. The two main types are invoice factoring and invoice factoring. Upon providing proof of your invoices, as well as other various business documents, you should be able to borrow as much as 85% of the value of your invoices to use as working capital and to use for business expenses.

If you need a quick and easy solution to plug a hole in your cash flow, this may be the financing option for you.


Business overdrafts are not as popular as they once were, as not all banks offer this service. An overdraft works by a bank giving a business a stipulated amount which they can use to make payments. The company will need to have a bank account with the lender. You’ll be able to negotiate the amount of overdraft that is available to you, and interest is usually only applied when you begin to make use of this overdraft amount.

Business credit cards

It is definitely not uncommon for a business to have credit cards, which work in very much the same way as personal credit cards work. Businesses can use a credit card to pay for any expenses they may incur as long as they don’t go over their credit card limit. If you use your credit card responsibly, you can also enjoy a good credit score which will help you when it comes to gaining further finance.

Start-up loans

Start-up loans can be obtained by aspiring entrepreneurs, especially for their brand new business ventures. This is a type of personal loan that is actually funded by the government to encourage economic development and provide support to local small businesses. Successful candidates also receive a year’s worth of absolutely free business mentorship to help them spend their loans wisely and make good business decisions.

Merchant cash advance

Merchant cash advances are extremely useful and helpful for retailers such as shops, restaurants, cafes etc., basically any business in which customers are making numerous credit card payments. Businesses are able to receive a merchant cash advance that will be expressed as a percentage of their average monthly credit card sales from lenders through their credit card terminal provider. Lenders will provide funds in return for a percentage of the business’s credit card income. This gives businesses access to more working capital, and the repayment structure is usually manageable in comparison to other financing options. The repayment schedule has a competitive interest rate, making start-up loans highly advantageous to new business owners.

Asset finance

If your business has valuable assets such as property, vehicles, and shares, asset finance is an accessible way of gaining finance for your business. The asset acts as a form of security for the lender, and you are usually able to get a loan that is based on the value of your assets.


Crowdfunding is a relatively new and interesting way to gain funding for your business. By creating a crowdfunding campaign, you’re able to take small investments from many people to gain your ‘goal’ investment. In return for the investors’ faith in your business, you can reward them with equity, or you can provide them with free products and services when your business is launched. Alternatively, their investments could act as a loan which you will repay over a certain time period.

Crowdfunding has proved to have amazing results, especially for tech companies and product-based companies and is definitely worth a try.

Keep in mind that there are still other ways to gain finance as a sole trader, and the processes that we have mentioned are just a few of the most popular. No matter what type of finance you choose to make use of, it is very important that you fully understand everything that you are getting yourself into and all the terms involved. If possible, get a financial advisor or a lawyer to go over the contract for financing with you so that you know that it is a plausible and advantageous option for you.



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