Business Loans for Sole Traders: What Are Your Options?

Term Insurance

A sole trader is often used to describe an individual who owns, controls, operates, and decides every aspect of an enterprise, with all of the executive decisions resting on that certain individual. These executive decisions include the handling of the business’ resources and its profits. 

Being a sole trader has a lot of advantages. One of these advantages is that the sole trader is able to have full control of the business operations and having all of the shots that can lead the business to different sources of revenue. 

Being a sole trader means that the business itself does not have to deal with a lot of bureaucracy whenever it comes to the business and its various deals with other businesses as well. Additionally, being a sole trader allows the business to be able to keep its finances private as there is only one person handling even the finances. 

While there are a lot of advantages in being  a sole trader, the downside of the coin is that sole traders are usually considered as high-risk when it comes to bank lenders and financial institutions that give out small business loans that help businesses in their daily needs. There is usually a stigma when it comes to sole traders as financial institutions deem them as entities that may not be able to answer to them swiftly or immediately when they need to contact them because of the nature of being a sole trader. 

SOLE TRADER LOANS

Because financial institutions or bank lenders deem sole traders as high-risk clients, what other options can a sole trader have when it comes to getting financial options?

Surprisingly, while the stigma is alive, there are a few business loan options that are available for sole traders, and here are some of them:

Unsecured Business Loans

An unsecured business loan is actually possible to be applied and approved for a sole trader. But this would be depending on the bank or financial institution offering it as they would still consider a sole trader as a high-risk entity. 

Secured Business Loan

One sure way of getting a business loan is through a secured business loan. This way, a lone trader will be able to secure a loan by securing an asset, usually a property, against the amount loaned. This is one way of ensuring the banks or financial institution that the lone trader will be following his obligations. 

Line of Credit

A line of credit will allow sole traders to draw funds from a line of credit set by the bank or financial institution offering them the loan. The lone trader will only pay the amount that they have used in the line of credit. 

Business overdraft

This type of business loan involves a business account with the bank or financial institution. Once the business uses up all of its money in the account, they can then opt to loan through the business overdraft. This type of business loan usually has minimum payment repayments that are required. 

Invoice Financing

Invoice financing is using your unpaid invoice finances and using them as security for the loan amount. This would mean that the bank or the financial institution would be the ones to run after the unpaid invoices once they are due. This is one sure way of a lone trader getting additional funding as the loan amount will be based solely on the amount of the unpaid invoices. 

A sole trader getting a business loan may be seen as something that is rarely given by banks and financial institutions, however, there are actually a lot of other options that are available, the key is to not lose hope and to inquire, inquire, and inquire!

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