Self Employed Business Loans

Written by Simon Moorcroft | Reviewed by Richard Wilcock | Updated: October 31, 2024

Table of contents

• Types of self-employed business loans
• How do self-employed loans work?
• Can I get a self-employed loan with bad credit?
• What can I use my self-employed loan for?
• Pros and cons of self-employed business loans
• Do I qualify for a self-employed business loan?
• How to compare self-employed business loans

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If you work for yourself (along with the other 4+ million self-employed people in the UK), you might think you can’t apply for a loan, but that’s not true. There are lenders out there catering to the needs of the self-employed borrower. And there’s more choice than you think.

Although it can be a little trickier to secure a self-employed business loan, it’s not impossible. Learn more about applying for a business loan below.

Types of self-employed business loans

Self-employed business loans fit into two categories: unsecured loans and secured loans. And the finance you apply for can be either short-term or long-term. What you can apply for depends on your personal circumstances, what you need the money for, how much you want to borrow and more.

Secured business loans for the self-employed

These loans are secured against one or more high-value assets, i.e. commercial property or a vehicle. This asset lessens the risk for the lender because should you default on the loan repayments they can seize ownership of your asset.

Unsecured business loans for the self-employed

To apply for an unsecured loan, you’ll need a good personal and business credit score, and some lenders might want you to sign a personal guarantee. You’ll likely see funds in your bank account quicker than other types of loans, but you might not be able to access as much funding as you could with a secured loan.

How do self-employed loans work?

Self-employed business loans are available from just £1,000 to in excess of £500,000 and work much like any other type of business loan. You apply, provide supporting documentation, agree on your repayment terms and the funds are deposited into your sole trader bank account or business bank account.

You’ll usually repay the loan in fixed monthly instalments, with interest, until the loan is repaid. If you miss a loan payment, it can severely impact your credit rating, so always check if you can comfortably repay the total loan amount before applying.

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Can I get a self-employed loan with bad credit?

Yes, you can still apply for a self employed loan with bad credit, but you might not have lots of lender options. If you have bad credit, you pose a risk to lenders, which means they can be a little reluctant to lend to you.

If you’re a sole trader looking for a better lender choice, consider improving your credit score or applying for a secured business loan.

If your credit score is poor, you might need to consider whether taking on debt is the best option for you right now. Consider approaching family and friends for a loan, accessing funds this way can give you access to the capital you need without affecting your credit score further.

What can I use my self-employed loan for?

You can spend your business loan on anything business-related, so if it helps to grow or sustain your business, spend away.

Here are some examples of how borrowers spend their business loans:

• Hire seasonal employees
• Purchase stock in bulk
• Fix short-term cash flow issues
• Pay bills
• Renovate business offices
• Consolidate business debt

Pros and cons of self-employed business loans

Applying for finance isn’t a decision you should take lightly — you’re taking on debt, which can lead to some financially stressful situations if you don’t borrow what you can afford. On the other hand, a business loan gives you a boost in working capital, which means you can take calculated risks to grow your business fast.

Here are some advantages and disadvantages of self-employed loans you should consider:

Pros

• Quick cash injection. Make your business growth goals a reality with your new funds. Invest in new markets, attract new customers, and re-design your product. The opportunities are endless.
• Flexible and affordable payment terms. There are many online lenders to choose from, which means there’s a loan type to suit individual business needs; with this choice comes flexible repayment plans and competitive interest rates.
• No restrictions when spending your loan. As long as you’re spending the loan on your business, you can spend it how you like.

Cons

• It can be high risk. Finding yourself stuck in a cycle of debt can become overwhelming. If you don’t keep up with loan repayments you can lose your asset or watch your credit score plummet. It’s always important to exercise caution when applying for loans.
• Interest rates can make the loan expensive. When calculating whether you can afford a loan, always consider the interest rate, as this ultimately determines how much the loan will cost you.
• You might be personally liable for repaying the debt. If you’ve signed a personal guarantee, you’ve agreed to pay the debt if the company cannot afford to, which means dipping into your personal savings.

Do I qualify for a self-employed business loan?

If you meet the following basic criteria, then there’s no reason you can’t qualify for a self-employed business loan:

• Be registered with HMRC
• Freelance or self-employed business
• Three-month minimum trading history
• Over the age of 18 years old
• A minimum monthly turnover may be required for some lenders

Check your eligibility for business funding

Checking won’t affect your credit score

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How to compare self-employed business loans

Comparing loans can take seconds when you use our free loan comparison tool. Simply enter some details (loan amount, reason for loan, loan term, etc.) and instantly start comparing eligible providers.

Our self-serve tool helps users easily navigate the world of business finance, compare total repayable, interest rates and more. Expand each loan to learn more and click through to continue with your application directly with the lender.

Getting a quote does not affect your credit score, and you are under no obligation to accept any quote.

We’ve helped thousands of self-employed professionals secure the funding they need to grow their businesses. Let us help you, too. Get a quote today.

About the author

Written by Simon Moorcroft

Money Writer, Director and Co-Founder

Simon has over twelve years of experience in consumer and business finance. Simon is a Co-Founder and Director at Capalona and heads up the technology team, who utilises the latest technology to assist our customers in finding fast finance.

Updated: October 31, 2024
Published: November 02, 2020