Self-employed people can apply for business loans in the UK, but eligibility depends on how the business is trading rather than how it’s structured. Many self-employed business owners assume applying for a business loan is too complicated or not possible at all, simply because they don’t have a limited company.  

What matters instead is whether the sole trader business meets a lender’s criteria based on trading history, repayment affordability and the purpose of the loan.  

This article explains how lenders typically assess established sole traders and when a self-employed person can access business loans to support growth or recovery. 

What does access to finance look like for the self-employed?

Access to finance can be more complex for self-employed businesses, supported by research suggesting that over a quarter (28%) of the UK’s self-employed struggle to access the financial services they require. With ONS data revealing there are nearly 4.4 million self-employed people in the UK, it’s important to understand how lenders interpret risk and affordability. 

What do lenders mean by ‘self-employed’?

In lending and legal terms, being self-employed means you and your business are legally linked either as a sole trader or partnership. You work for yourself and you pay your own wages. This differs from a limited company, which is treated as a separate legal entity with its own legal obligations and liabilities.  

When lenders consider self-employed and limited company business loans, they may be assessed slightly differently, but decisions are made in the context of overall business performance and the loan’s purpose.   

What criteria do self-employed people need to meet for a business loan?

For business loan applicants, lenders look for evidence that the business can comfortably afford the loan. While criteria vary with different lenders, common considerations include: 

Trading history and consistency

Most lenders expect 12 to 24 months of trading, ideally with consistent or improving performance.  

Affordability and cash flow

Profit matters but it’s not everything. Predictable cash flow and repayment capacity matter more when lenders assess your eligibility for a self-employed loan.  

Clear purpose for the loan

Loans that are linked to a defined outcome, such as equipment purchase or business recovery after a disruption or setback, are often assessed more favourably than vague loan requests. 

Credit profile

Because sole traders are legally linked to their business, both business performance and personal credit history are considered together. 

Business loan vs personal loan for self-employed people

Self-employed business owners often find themselves deciding between a business loan and a personal loan. The main difference between business and personal loans for self-employed people is how the borrowing is assessed and structured. While sole traders are usually personally liable in both cases, business loans are assessed on business performance. In comparison, personal loans rely on individual income and credit. 

It’s worth noting that alternative lenders can be more flexible where trading history is shorter or income isn’t as consistent, compared to what traditional models prefer.  

 

Factor	Business Loan	Personal Loan
Assessment basis	Business performance and credit	Personal income and individual credit score
Typical loan size	£10k – £250k	£1k – £25k
Use of funds	For business needs	Flexible
Risk exposure	May influence both your business and personal credit score	Will influence your personal credit score
Suitability	Growth and recovery, larger-scale investments	Short-term gaps or projects

In practice, business loans are typically better suited to larger investments tied to business growth, while personal loans may be appropriate for smaller, short-term needs. Choosing the wrong option can limit future borrowing, negatively impact your personal credit score, or add unnecessary risk to your business.  

Is a business loan the right next step?

A business loan can help your self-employed business if you’re looking to:

• Invest in new equipment or vehicles 
• Expand or refurbish studios or premises 
• Support cash flow during a growth period 
• Recover operations following disruption or unexpected costs 
• Refinance existing, higher-cost borrowing

It’s generally less suitable where income is unpredictable, the purpose of the loan is unclear, or the business is still in its early stages of trading.  

How applying for a self-employed business loan works

Applying for a business loan as a self-employed person largely follows the same process as any other business application, but with greater emphasis on documentation and financial evidence.  

Most lenders typically ask for: 

• Proof of ID and address, usually through a copy of your passport, utility bill or driving licence. 
• Bank statements to confirm your monthly income and outgoings. 
• An SA302 tax calculation from HMRC outlining the last two years of self-employed earnings may be requested, but not always.  
• Cash flow forecasts and business plans.

While these may seem daunting, your lender should provide support and guidance where appropriate.  

How can BCRS help with self-employed business loans?

BCRS provides business loans for self-employed businesses for those based in the West Midlands and Wales. Your application is assessed by a real person, not a computer algorithm, and is managed by a dedicated business development manager who will support you through the rest of your loan application. 

With BCRS, you won’t have to deal with a computerised result as we respect and value the nuances of small and medium-sized businesses. That’s why you’ll always be assigned a dedicated and highly praised business development and lending manager to review your situation and work with you to achieve your goals.  

Join businesses like Miss Macaroon and Wynnstay Self Storage to finance your growth. 

Ready to explore your funding options?

If you’re unsure whether a business loan is the right next step, reviewing your funding readiness before applying can help avoid any unnecessary rejections. Speaking to a lender experienced in self-employed applications can help clarify your options.  

When all you need is belief in your business and industry advice, call us on 0345 313 8410 or email your questions to the team at enquiries@bcrs.org.uk. We can’t wait to discuss your business’s potential.  

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