Business Loans for the Self-Employed: What Are Your Options?

If you’re self-employed and looking for a business loan, the first thing you need to know is that your legal structure determines almost everything — who will lend to you, how much, on what terms, and at what rate.

Sole traders and limited company directors are treated very differently by lenders. Understanding that difference upfront saves you time, protects your credit score from unnecessary searches, and helps you find the right route faster.

This guide covers both.

Disclaimer: I’m a Chartered Accountant, not a financial adviser. This guide is for information only. Always read the full terms of any loan and consider speaking to a financial adviser before borrowing.

Why Your Business Structure Matters for Borrowing

As a self-employed sole trader, you and your business are legally the same thing. There’s no separation between your personal finances and your business finances — which means lenders can’t assess business risk independently of personal risk, and there’s no business credit file to evaluate separately from yours.

As a limited company, the business is a separate legal entity. It has its own credit history, its own accounts filed at Companies House, and its own liability for debts. That separation is what unlocks access to business lending.

In practice this means: limited companies have significantly more borrowing options than sole traders, often at better rates and higher amounts.

That doesn’t mean sole traders can’t access funding — but the routes are different, and it’s worth knowing which doors are open before you start applying.

Business Loans for Sole Traders

Here’s the honest picture: unsecured business loans from alternative lenders are largely not available to self-employed sole traders in 2026.

The major alternative lenders — including iwoca and Funding Circle — have either never lent to sole traders or have stopped doing so. Funding Circle stopped accepting sole trader applications in February 2026. iwoca lends to limited companies and LLPs only.

This doesn’t mean you’re without options. It means the options look different.

What Sole Traders Can Access

1. The British Business Bank Start Up Loans Scheme Government-backed, fixed rate of 7.5% APR, borrow up to £25,000, repay over 1-5 years. Open to sole traders and businesses trading fewer than 36 months. No early repayment charges. Requires a business plan and takes around 4 weeks to process — slower than alternative lenders but one of the cheapest rates available to sole traders.

Best for: Early-stage sole traders who need up to £25,000 and can wait a month for the funds.

2. Personal Loans Used for Business Assessed on your personal credit history and income rather than business performance. Rates vary significantly by provider and credit history. No business structure requirement. The downside: you’re personally liable (which as a sole trader you already are) and the amounts available tend to be lower than business loans.

Best for: Sole traders who need a smaller amount quickly and have a strong personal credit history.

3. Business Overdrafts and Credit Lines via Your Bank Your business bank may offer an overdraft or credit line based on your trading history and personal credit. Less formal than a loan application and often faster to arrange. Interest is only charged on what you use. Starling, Tide, and other business bank providers sometimes offer credit facilities to established sole traders.

Best for: Managing short-term cash flow gaps rather than funding a specific investment.

4. Asset Finance If you need to fund a specific piece of equipment, vehicle, or machinery, asset finance lenders assess the asset being purchased rather than your business structure. The asset acts as security. More accessible to sole traders than unsecured lending.

Best for: Sole traders who need to fund a specific purchase rather than working capital.

5. Invoice Finance If you invoice clients and wait for payment, invoice finance lets you access a percentage of the invoice value immediately — typically 80-90% — rather than waiting 30, 60, or 90 days. Some providers work with sole traders. The fee structure varies but it can significantly improve cash flow for service-based businesses with slow-paying clients.

Best for: Sole traders with B2B clients who regularly face payment delays.

Thinking about incorporating? If access to business finance is a significant factor in your decision, it’s worth understanding what changes when you move from sole trader to limited company. Read our full guide to sole trader vs limited company →

Business Loans for Limited Companies

Limited companies have significantly more options — from high-street banks to specialist alternative lenders who can make same-day decisions and fund within 24-48 hours.

The Main Options

1. iwoca Flexi-Loan One of the most flexible business lending products available to UK limited companies. Borrow from £1,000 to £500,000, for as little as one day or as long as 60 months. Draw down what you need, repay early without penalty, and only pay interest for the days you have the money. No arrangement fees.

The Flexi-Loan is designed for businesses with variable cash flow — you’re approved for a limit and draw against it as needed, repaying and redrawing without reapplying each time. Decisions are typically same-day.

Eligibility: UK limited company or LLP, 3-6 months trading minimum, UK business bank account, personal guarantee from a director required. Iwoca assesses applications using real-time cash flow data via Open Banking rather than relying solely on historic accounts.

Rate: Representative 49% APR — higher than traditional lenders but the flexibility and speed justify it for short-term draws. Judge it on total cost for your specific borrowing period, not the headline rate.

Best for: Limited companies needing flexible, fast access to working capital.

Club deal: Members of The Self Employed Club can access an exclusive iwoca deal. See what’s available →

2. Funding Circle The lowest representative rate among major alternative lenders — from 6.9% APR. Borrow from £10,000 to £750,000, with terms up to 5 years. No early repayment charges. Funds typically within 24-48 hours once approved.

The trade-off for the lower rate is stricter eligibility: limited companies only (no sole traders since February 2026), minimum 2 years trading, approximately £50,000 annual revenue, and a completion fee of 1-3% of the loan amount.

Eligibility: UK limited company or LLP only, 2+ years trading, strong credit history, personal guarantee required.

Best for: Established limited companies wanting the lowest available rate for a larger term loan.

Club deal: Members of The Self Employed Club can access an exclusive Funding Circle deal. See what’s available →

Join the Club — it’s completely free

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3. Tide Funding Options Rather than a direct lender, Tide operates a funding marketplace — one application reaches multiple lenders across term loans, flexible credit lines, invoice finance, and merchant cash advances. Useful if you’re not sure which product suits you best, or want to compare offers without multiple credit searches affecting your score.

Eligibility: Varies by lender — Tide matches your application to lenders whose criteria you’re likely to meet.

Best for: Limited companies wanting to compare multiple funding options in one place without impacting their credit score.

Club deal: Members of The Self Employed Club can access an exclusive Tide deal. See what’s available →

4. High-Street Banks Traditional business loans from banks like Barclays, HSBC, NatWest, and Lloyds typically offer lower rates than alternative lenders — but slower decisions, more paperwork, and stricter criteria. Worth approaching if you have an established banking relationship and aren’t in a hurry.

Best for: Established limited companies with a strong banking relationship who can wait for a decision.

5. British Business Bank — Recovery Loan Scheme Government-backed lending available through accredited lenders. Designed to support UK businesses that might struggle to access mainstream finance. Worth checking eligibility if you’ve been turned down elsewhere.

Side by Side: Business Loans for the Self-Employed by Structure

Before You Apply — What Lenders Look At

Regardless of your structure, most lenders will assess:

Trading history — how long you’ve been operating. Most alternative lenders require 6-24 months minimum. The British Business Bank Start Up Loans scheme is one of the few routes for very early-stage businesses.

Revenue and cash flow — lenders want to see that the business generates enough to service the debt. Many require minimum annual turnover of £50,000, particularly for larger loans.

Credit history — both business credit (for limited companies) and personal credit. Adverse credit doesn’t automatically disqualify you but will affect the rate you’re offered.

Personal guarantee — most unsecured business lenders require a director or owner to personally guarantee the loan. This means you’re personally liable if the business can’t repay — even for a limited company.

Loan purpose — some lenders are flexible about how you use the funds; others have restrictions. Having a clear purpose strengthens your application.

The Personal Guarantee — What It Actually Means

This is the thing most people don’t fully understand until after they’ve signed.

A personal guarantee means that if the business can’t repay the loan, the lender can pursue you personally — regardless of your business structure. For a limited company, this partially undermines the liability protection that incorporation provides.

Before signing a personal guarantee:

• Understand exactly what you’re personally liable for
• Check whether the guarantee is limited (capped at a specific amount) or unlimited
• Consider whether the loan amount justifies the personal risk
• Speak to a solicitor if the amounts involved are significant

What to Do If You’re Declined

Being declined for a business loan isn’t the end of the road. A few options worth exploring:

Check your credit report — errors are more common than people realise. Fix any inaccuracies before reapplying.

Try a different lender — criteria vary significantly. Being declined by one lender doesn’t mean another will say no.

Consider a smaller amount — loan amounts are often assessed as a percentage of turnover. A smaller initial loan, repaid cleanly, builds your borrowing history.

Explore alternative funding — grants, invoice finance, asset finance, and revenue-based lending all work differently from traditional loans and may suit your situation better.

Consider incorporating — if you’re a sole trader being consistently declined for the funding you need, incorporating as a limited company opens significantly more doors. Read our guide to whether incorporation is right for you →

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Members get handpicked deals and discounts on the tools, services and everyday essentials UK sole traders actually use. Free to join, no catch.

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