Business loans for sole traders

Which business loans are available for sole traders? 

1. Business term loan

A business term loan is repaid over a set period of time (i.e. the term) and can be suitable for short, medium and long-term investments. Many loans offer both unsecured and secured options, as well as a range of repayment options, so you can tailor the loan to suit your needs. 

Best for: Sole traders who want to cover business investments and costs over a set time period. 

2. Business overdraft 

With a Business Overdraft, you can get fast access to additional funds through your business transaction account. You’ll only pay interest on what you use, with no regular fixed repayments – sole traders can find this helpful for managing fluctuations in cash flow.   

Best for: Sole traders who want to manage cash flow or unexpected expenses.

3. Car & equipment financing 

Need new tools, machinery, or tech? Car & equipment finance allows you to borrow specifically for business assets, with the asset often acting as security for the loan. You can usually customise the repayment schedule, with optional balloon payments, to work for you.  

Best for: Sole traders looking to invest in equipment without draining their cash reserves.

4. Business credit cards 

A business credit card can help cover immediate expenses. Some cards also earn rewards or frequent flyer points, which you might be able to use to offset relevant business expenses. Interest rates are often higher on credit cards than a loan or overdraft.  

Best for: Sole traders with low-cost ad hoc expenses or looking to be rewarded on their spend.

5. Bank Guarantee 

A Bank Guarantee is an alternative to providing a deposit or bond directly to a supplier, vendor or landlord, known as a Favouree (or beneficiary). Your Favouree has the certainty of knowing they’ll be paid, while you can benefit by earning interest on your cash held in a deposit account. Rather than paying an interest rate, you usually you pay a fee instead.  

Best for: Sole traders wanting to secure business opportunities without requiring upfront capital.

Is it hard to get a business loan as a sole trader?

What lenders typically look for

1. A solid credit history: Both your personal and business credit scores will play a role. A good score shows you’re reliable with repayments. 
2. Consistent income: Lenders want to see proof of steady cash flow to ensure you can meet repayments. If you’re a CommBank customer, you can use the business cash flow view in the app to help you.  
3. Clear business plan: If you’ve been operating for less than 12 months, you’ll need to clearly explain how the loan will benefit your business and how you plan to repay. Don’t have a business plan? Here are some tips on how to write one.
4. Financial documentation: Be ready to share bank statements, tax returns, and other financial records. Here’s more information about the documents you’ll need.
    

Challenges sole traders might face 

• No collateral: If you can’t offer an asset (like property or equipment) as security, lenders might view the loan as riskier, which might mean a higher interest rate. 
• Limited financial history: If your business is relatively new, you might not have enough financial history to satisfy lenders.
   

Tips to improve your eligibility 

• Keep your personal and business finances well-documented and separate. 
• Build and maintain a good credit score. You can check your credit score in NetBank and the CommBank app. 
• Save a minimum 30% deposit (for secured loans) as well as cash reserves to show you can operate the business for at least the first 3 months 
• You’re more likely to be approved if you haven’t been declared bankrupt in the last 5 years.