Funding Your Business: A Guide for Sole Traders and Limited Companies
Running your own business means funding it yourself — whether that’s your own savings, a business loan, or something more creative. And unlike an employee who can rely on their employer’s resources, sole traders and limited company directors have to find, evaluate, and manage their own finance from day one.
The good news: there are more options available than most people realise. The bad news: not all of them are available to all business structures — and choosing the wrong route can be expensive.
This guide covers every main funding option available to UK sole traders and limited company directors in 2026, what each one is best for, and how to find the right fit for your situation.
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Table of Contents
Why Your Business Structure Matters
Before looking at specific funding options, it’s worth understanding one fundamental point: your legal structure determines what finance you can access.
As a sole trader, you and your business are legally the same entity. Lenders can’t separate your personal and business risk, which means unsecured business lending from alternative lenders is largely unavailable to you. Your funding routes tend to be personal loans, government-backed schemes, asset finance, and invoice finance.
As a limited company director, the business is a separate legal entity with its own credit history and accounts. This opens significantly more doors — unsecured business loans, revolving credit facilities, and the full range of alternative lender products.
This doesn’t mean sole traders can’t access funding. It means the options look different — and knowing which doors are open saves time, protects your credit score, and gets you to the right solution faster.
The Main Funding Options at a Glance
|
Funding type |
Sole trader |
Limited company |
Best for |
|---|---|---|---|
|
Business loans |
⚠️ Limited |
✅ Full access |
Growth investment, working capital |
|
Start Up Loans (BBB) |
✅ Up to £25,000 |
✅ Up to £25,000 |
Early-stage businesses |
|
Business credit cards |
✅ |
✅ |
Short-term spending, cashflow |
|
Overdraft / credit line |
⚠️ Limited |
✅ |
Managing cash flow gaps |
|
Invoice finance |
⚠️ Some providers |
✅ |
Unlocking unpaid invoices |
|
Asset finance |
✅ |
✅ |
Equipment, vehicles, machinery |
|
Grants |
✅ |
✅ |
Growth, R&D, specific sectors |
|
Revenue-based finance |
⚠️ Limited |
✅ |
Businesses with regular revenue |
|
Personal savings |
✅ |
✅ |
Starting out, small investments |
Business Loans
A business loan is a lump sum borrowed from a lender, repaid with interest over an agreed term. It’s the most searched-for funding option — and the one with the most variation in who can access it.
For sole traders: Unsecured business loans from major alternative lenders are largely unavailable. The main routes are the British Business Bank Start Up Loans scheme (up to £25,000 at 7.5% APR fixed), personal loans assessed on your own credit, and some specialist sole trader lenders.
For limited companies: The full range of alternative lender products is available — including iwoca’s Flexi-Loan (from £1,000 to £500,000, same-day decisions), Funding Circle (from £10,000 to £750,000, from 6.9% APR, for businesses with 2+ years trading), and Tide Funding Options (a marketplace covering multiple lenders in one application).
Personal guarantees are required by most unsecured lenders — meaning a director is personally liable if the business can’t repay, regardless of limited company structure.
Club deals on business loans: Members of The Self Employed Club can access exclusive deals with iwoca, Funding Circle, and Tide. See the current deals →
Read the full guide => Business Loans for the Self-Employed: What Are Your Options?
The British Business Bank Start Up Loans Scheme
The government-backed Start Up Loans scheme is one of the only funding routes available to both sole traders and limited companies in their early stages — and at one of the lowest rates available anywhere.
What it offers:
- Borrow up to £25,000 per director (up to £100,000 per business if multiple directors apply)
- Fixed rate of 7.5% APR
- Repay over 1 to 5 years
- No early repayment charges
- Free mentoring included with every loan
Who qualifies: UK-based businesses trading fewer than 36 months, aged 18+. Sole traders and limited companies both eligible.
The catch: You need a business plan, and the application takes around 4 weeks. Not suitable if you need funds quickly.
For early-stage businesses that can wait, it’s one of the best-value funding options available. The rate is hard to beat and the mentoring support adds genuine value.
Apply: British Business Bank Start Up Loans
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Business Credit Cards
A business credit card gives you a revolving credit line — spend up to your limit, pay it off monthly or over time. Used well, it’s one of the most flexible and cost-effective funding tools available to sole traders and limited company directors alike.
What they’re good for:
- Managing short-term cash flow gaps
- Separating business and personal spending
- Earning cashback or rewards on business purchases
- Building a business credit history (for limited companies)
What to watch: Interest rates on credit cards are significantly higher than business loans — typically 20-30%+ APR. They’re not suitable for long-term borrowing or large capital investments. Pay the balance in full each month wherever possible.
Capital on Tap is one of the most popular business credit cards among UK sole traders and limited company directors — flexible credit limits, cashback on spending, and quick online application.
Club deal: Members of The Self Employed Club can access an exclusive Capital on Tap deal. See it here →
Invoice Finance
If you invoice clients and wait for payment — 30, 60, or 90 days — invoice finance lets you access a percentage of that invoice value immediately, rather than waiting for the client to pay.
How it works:
- You raise an invoice for a client
- The invoice finance provider advances you typically 80-90% of the invoice value immediately
- When the client pays, you receive the remainder minus the provider’s fee
Two main types:
- Invoice factoring — the provider manages your sales ledger and chases payment directly. More hands-on.
- Invoice discounting — you manage your own ledger and collections; the facility is confidential. More suitable for established businesses.
Who it’s best for: Sole traders and limited companies with B2B clients who regularly face delayed payments. Particularly useful for businesses with strong order books but poor cash flow due to slow-paying clients.
Asset Finance
If you need to fund a specific piece of equipment, vehicle, or machinery, asset finance is often more accessible than a general business loan — because the asset itself acts as security.
Main types:
- Hire purchase — you pay in instalments and own the asset outright at the end
- Finance lease — you rent the asset for an agreed period without owning it
- Operating lease — shorter-term rental, useful for assets that quickly become outdated
Why it works for sole traders: Because the asset secures the finance, lenders are less concerned about business structure. Sole traders have more access to asset finance than unsecured lending.
Allowable expense: The cost of financing business assets is generally an allowable expense, and capital allowances may be available on qualifying purchases. Read more about allowable expenses →
Business Grants
Grants are money you don’t have to repay — which makes them worth pursuing even when the application process is time-consuming.
The reality: grants are competitive, often sector-specific, and rarely cover everything you need. But for the right business at the right stage they can be transformative.
Where to look:
Innovate UK — grants for businesses developing innovative products or processes. Competitive but well-funded.
Local Growth Hubs — most regions have a Growth Hub offering grant advice and signposting to local funding.
Business Energy Efficiency Grants — funding for businesses investing in energy-efficient equipment or processes.
Sector-specific grants — creative industries, agriculture, technology, social enterprise — many sectors have dedicated grant programmes. Worth researching your specific industry.
The British Business Bank — not just loans. The BBB also signposts to regional and sector-specific grants via its Finance Hub.
Where to start: gov.uk/business-finance-support — the government’s own finder tool for grants and funding by location and sector.
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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.
Revenue-Based Finance
A relatively newer funding model where the amount you repay each period is tied to your revenue rather than a fixed monthly instalment. In a good month you repay more; in a quieter month you repay less.
Better suited to limited companies with predictable but variable revenue — ecommerce, SaaS, subscription businesses. Less relevant for project-based sole traders with irregular income.
Personal Savings
The most accessible and lowest-cost funding source — no interest, no lender, no application. For most people starting out, personal savings fund the early stages before any external finance is considered.
The risk: mixing personal and business finances, and the personal financial pressure of having your own money on the line. A separate business bank account from day one keeps things clean and protects your clarity on both sides.
How to Choose the Right Funding for Your Business
The right funding depends on three things:
1. What you need it for Working capital (day-to-day cash flow) and growth investment (buying equipment, hiring, expanding) need different solutions. Don’t use a long-term loan for a short-term cash flow gap — and don’t use a credit card for a long-term investment.
2. How urgently you need it Alternative lenders like iwoca can fund within 24 hours. The British Business Bank takes around 4 weeks. High-street banks can take months. Match the speed of the solution to the urgency of the need.
3. Your business structure and trading history Sole traders have fewer options than limited companies. Newer businesses have fewer options than established ones. Starting with a realistic view of what you’re likely to qualify for saves time and protects your credit score from unnecessary searches.
Before You Borrow — A Checklist
- Do you genuinely need the finance, or can cash flow be improved in other ways first?
- Have you compared the total cost of borrowing — not just the headline rate?
- Do you understand the personal guarantee implications?
- Is your credit file in good shape? Check it before applying.
- Have you considered grants before going straight to loans?
- Is your accounting in order? Lenders will look at your records.
- Have you checked the Club deals before committing to any provider?
Members of The Self Employed Club get exclusive deals on business loans, credit cards, and financial tools for sole traders and limited company directors. Free to join, no catch. Browse Funding & Finance deals →
What funding options are available to sole traders in the UK?
Sole traders can access the British Business Bank Start Up Loans scheme (up to £25,000), personal loans, asset finance, invoice finance, business credit cards, and grants. Unsecured business loans from major alternative lenders are largely unavailable to sole traders — most require a limited company structure.
What funding options are available to limited companies?
Limited companies have the widest range of options — unsecured business loans (iwoca, Funding Circle, Tide), revolving credit facilities, invoice finance, asset finance, business credit cards, grants, and revenue-based finance.
What is the cheapest way to fund a small business?
Grants are the cheapest (no repayment), followed by the British Business Bank Start Up Loans scheme (7.5% fixed APR). For established limited companies, Funding Circle offers rates from 6.9% APR — among the lowest from alternative lenders.
Do I need a personal guarantee for a business loan?
Most unsecured business lenders require one, even for limited companies. It means you’re personally liable if the business can’t repay. Always understand the full terms before signing.
Can I get a business loan with bad credit?
Some lenders are more flexible than others on credit history. The British Business Bank considers adverse credit case by case. iwoca focuses more on current cash flow than historic credit. Being declined by one lender doesn’t mean all will say no.
Should I incorporate to access better business finance?
Incorporating as a limited company does open significantly more funding doors — particularly for unsecured lending. But the decision should be based on your overall circumstances, not funding access alone. Read the full guide →
Where can I find deals on business finance?
The Self Employed Club — free membership with exclusive deals on business loans, credit cards, and financial tools for UK sole traders and limited company directors. Join free →
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