Those in the process of planning to work for themselves in a one person operation, sourcing sole trader business finance at the cheapest possible interest rates is achievable through the right lenders. The dream or even the definite career plan for many aspirational individuals is to work for themselves. To, at some point in their working life or career, to make the transition from employee to boss.This may mean setting up as a sole trader in any number of fields such as:- contracting in the business services including tech activities, contract delivery work, construction and trade work, turning a hobby into the main income stream, establishing a beauty business, owner-driver and many others. Many of these types of businesses will require the purchase of some form of equipment and/or general financial support at least in the initial phases. Finance may actually be needed to establish the operation with the purchase of a van, truck, IT equipment, tools and possibly stock for online retailers. In addition to new business set-ups, existing sole traders may also require finance. When applying for finance, sole traders may quickly realise that meeting the eligibility for business finance and finding a bank that will fund the operation are more difficult than initially imagined. Much higher interest rates on loans may also be a prospect. This can apply to both new start-ups and sole traders that have been working solo for some time. Before despairing or signing up for high interest rate loans that you just know will be a hindrance and not a support for the business, consider using a finance broker. We provide a finance broker style service to assist sole traders to secure the funding needed at attractive and workable interest rates. With the RBA in a rate hike cycle, finding a lender that will offer a sole trader a better interest rate may be critical to that first year of success. Sole Trader Finance Requirements The finance requirements of sole traders may vary based on whether this is a new set-up or if the individual has been operating the business for a period of time. For those setting up and for those that are a short-time into operations, No Docs and Low Docs loans may be needed. For sole traders with a lengthy trading period, say several years, normal business finance should be available but with additional conditions. Sole trader finance is not available through all business finance lenders. Some will have a set minimum on how long the business must trade or be operating before being eligible for finance. There are also requirements with the financial information which needs to be provided with the loan application. We do have access to non-bank lenders that offer sole trader finance through Low Docs and No Docs Loans and Small Business Finance options. To be eligible for any type of business finance, a current ABN must be held and the applicant must be able to provide ID. Lenders will have individual guidelines around other loan application requirements and finance offers, including the interest rate will be made on that basis. Your Business Finance consultant will handle the sourcing and negotiating process and will guide you through completing the application. With such a vast selection of lenders available to us, we can quickly pinpoint which will be best-suited to individual sole traders. A key point to keep in mind is credit rating. When assessing finance applications from sole traders, it is an accepted practice for lenders to include both the business and the sole trader’s individual credit profile in the assessment. So it is important that both the business entity and the owner maintain a good credit record with a score in the good range. The cheapest advertised interest rates are typically for good credit rated loan applicants. Special Loan Conditions If the business, if an ongoing concern, and the sole trader individually have good credit scores and can provide a strong loan application, a cost-effective loan at a workable interest rate is not beyond expectation. However, lenders may attach conditions to sole trader finance which are not always attached to finance for larger or well-established businesses. These loan conditions may cover:-
- A limit on the total amount which may be borrowed. Tip: no deposit finance can be achieved in many instances. To cover off in the case of this being rejected by the lender, consider allowing for having to use resource to make a larger deposit or selecting a cheaper asset.
- Additional guarantees against the loan in the form of security. This may require property or other assets owned by the sole trader to be provided as security. This can be requested even with secured loans such as for new vehicles or equipment.
- The finance term may be limited by the lender. The longer the term the lower the monthly repayments is the general rule of thumb. This can be desired by sole traders to keep monthly outgoings to a minimum. But lenders may have rulings on this. Tip: allow for a contingency by factoring possibly higher repayments with shorter finance term into plans.