As a sole trader, setting yourself up in business may be the fastest and most straightforward way to pursue your entrepreneurial dreams. However, when it comes to funding your business, you may have questions about the available options and how they apply to your unique situation. In this article, we will explore the various funding sources for sole traders and provide valuable insights to help you make informed decisions. Whether you’re considering borrowing, equity finance, or exploring business grants, we’ve got you covered.
Borrowing Options for Sole Traders
As a sole trader, you may have heard that setting up as a limited company provides more borrowing options. While there are certain limitations, there are still plenty of borrowing options available to sole traders.
Sole traders may not qualify for startup loans, as this specific funding option requires the borrower to be a company director. However, there are alternative products that sole traders can explore. For example, asset finance can cover the cost of machinery or equipment, while a merchant cash advance can provide a capital injection.
Additionally, a revolving credit facility can offer flexibility in managing cash flow. It’s important for sole traders to be aware of the available options and explore what suits their business needs.
Secured Borrowing: Commercial Mortgages and Business Loans
Aside from unsecured loans, sole traders can also consider secured borrowing options such as commercial mortgages and business loans secured against property.
If you own multiple properties and are considering expanding your portfolio, incorporating your properties into a limited company may provide tax benefits. This is particularly relevant as landlords who own properties in their personal capacity are no longer able to claim tax relief on the interest they pay on borrowings.
Navigating the complexities of secured borrowing as a sole trader can be daunting. It’s crucial to seek guidance from professionals such as British Business Funding or your accountant to ensure you make informed decisions that align with your business goals.
Equity Finance: Exploring Investment Opportunities
While personal finance and family and friends rounds are common initial funding sources for sole traders, attracting substantial investment often requires engaging with investors and undergoing thorough due diligence. This entails a comprehensive assessment of your business, covering financials, operations, and legal structure. Restructuring as a Limited Liability Partnership (LLP) or limited company may be essential to issue shares and effectively pursue equity funding. This transition provides potential investors with a formalised ownership structure and limits personal liability, factors important to risk-averse investors.
Becoming an LLP or limited company also enhances credibility and professionalism, potentially drawing in more investors. It expands opportunities for various funding types like venture capital and angel investments, which prefer established legal structures. However, this process involves legal complexities. Consulting a business advisor or legal expert specialising in corporate structuring can guide you through, ensuring compliance and aiding in making informed decisions aligned with your business goals.
Sole Trader Business Grants: Exploring Non-Repayable Funding
Business grants are a popular funding option for businesses, as they do not need to be repaid and can provide a valuable boost, particularly in areas such as innovation, research and development (R&D), and sustainability. While many grants are exclusively available to limited companies, there are still grants accessible to sole traders.
When applying for grants, it is crucial to align your business goals with the specific project or improvement the grant aims to support. Grant briefs outline eligibility criteria that should be carefully reviewed to avoid wasting time on applications that may not be applicable to your business.
For local grants, registering your interest and providing information about your business and how it aligns with the eligibility criteria is typically required. We suggest taking advantage of in-house advisors provided by grant providers who can offer guidance and answer any questions.
Larger grants, often focused on highly innovative projects, can provide substantial financial support. However, BBF recommends seeking assistance from experienced partners who have a track record of securing such funding. Winning larger grant funding requires a strong case that stands out among the competition.
How to Get Started
If you’re a sole trader looking for funding options, it’s essential to have a comprehensive understanding of what is available to you. British Business Funding offers a network of government backed loans and free expert guidance, letting you access all the funding options based on your business details. By leveraging their expertise and our resources, you can navigate the funding landscape more effectively.
Remember, when it comes to funding your business as a sole trader, it’s crucial to stay informed, seek professional advice, and explore the options that align with your business goals. With the right support and knowledge, you can make informed decisions that will contribute to the growth and success of your business.
Get Started with British Business Funding
In addition to the funding options mentioned in this article, it’s worth exploring the various funding opportunities provided by British Business Funding. They offer a range of programs and initiatives aimed at supporting businesses across different sectors. Whether you’re a sole trader or a limited company, British Business Funding may have funding options that are suitable for your business. Take the time to have a look at our website and understand what we have to offer, and you may discover additional avenues to secure the funding you need.
Conclusion
As a sole trader, securing funding for your business is a crucial step towards growth and success. While there may be limitations compared to being a limited company, there are still numerous options available to sole traders. From borrowing options such as unsecured loans, asset finance, and merchant cash advances, to exploring secured borrowing through commercial mortgages and business loans, there are avenues to explore based on your specific needs.
If equity financing is your goal, consider the possibility of restructuring as an LLP or limited company to issue shares and attract investors. Additionally, business grants can provide non-repayable funding to support innovation, R&D, and sustainability initiatives. Understanding the eligibility criteria and aligning your business goals with the grant’s purpose is key to successful applications.
Remember to leverage resources like British Business Funding to access comprehensive funding options and expert guidance. With the right support and knowledge, you can navigate the funding landscape and take your sole trader business to new heights.