Being a sole trader is the fastest and most straightforward way to set yourself up in business. But what does it mean for your ability to raise funding?<\/p>\n\n\n\n
If you\u2019re in business for yourself as a sole trader, you may have heard lots of reasons why you should set up as a limited company instead. <\/p>\n\n\n\n
We\u2019re not going to rehash the arguments. Instead, here\u2019s what you need to know about the major funding sources and how to ensure that you get the most out of working for yourself.<\/p>\n\n\n\n
Rhys Cunnah, Chief Growth Officer at Swoop says that there are still plenty of borrowing options for sole traders<\/a> who can still apply for unsecured business loans<\/a>:\u00a0<\/p>\n\n\n\n \u201cAs Swoop is FCA regulated, our credit license effectively allows us to access facilities for sole traders from less than \u20ac1k with no upward limit. The one thing sole traders miss out on is the startup loan<\/a>, as for this you have to be a company director. Sole traders are not company directors, because they are classed as a business.\u201d<\/em><\/p>\n\n\n\n The word \u201climited\u201d in \u201climited company\u201d refers to the limited liability of directors for a company\u2019s debts. As a sole trader, this means you\u2019re personally liable for any debts the business acquires. Rhys says that this may make sole traders more cautious about taking on debt, but there are still different products for which they qualify: <\/p>\n\n\n\n \u201cSole traders can use asset finance<\/a> to cover the cost of the machinery or equipment, get a capital injection with a merchant cash advance<\/a> or open up a revolving credit facility. If you think that as a sole trader you can\u2019t borrow, you should think again and explore what is out there on the Swoop website.\u201d<\/em><\/p>\n\n\n\n Separate from unsecured loans, Stuart Pawelczyk, Head of Commercial Mortgages at Swoop, says that there are opportunities for sole traders to get into the property business. Stuart says: <\/p>\n\n\n\n \u201cSole traders can obtain commercial mortgages<\/a> and business loans<\/a> secured against property. Swoop works with all types of clients to access funding. Sometimes customers plough head first into buying something in their personal name because they need to act fast to secure an opportunity. However, we always recommend a conversation with one of our Commercial Finance Managers as well as your accountant to make sure you get the deal structure right from the start. Getting it wrong can be costly to unwind or see you paying an unnecessary amount of tax.\u201d<\/em><\/p>\n\n\n\n Stuart adds that sole traders should take the time to understand the pros and cons of the various deal structures that are available to them:<\/p>\n\n\n\n \u201cFactors such as term length and flexibility of payments may prove to be as significant to you as the funding structure itself. Support on this front can be provided by Swoop or your accountant. Being aware of the pitfalls and benefits of each structure will enable you to make an informed decision on which way to proceed is best for you and your business.”<\/em><\/p>\n\n\n\n The number of properties you own may affect whether you remain a sole trader; Stuart says that when you are ready to make the move, the commercial mortgage team can help: <\/p>\n\n\n\n \u201cAt Swoop we have supported a large number of professional property landlords with \u2018incorporating\u2019 their portfolios due to the tax benefits this creates. Landlords who own properties in their personal capacity are no longer able to claim tax relief on the interest they pay on borrowings held, whereas in a limited company, you can claim tax relief on interest paid. This challenge is magnified the larger the portfolio and loan amount as it massively impacts the profitability.\u201d<\/em><\/p>\n\n\n\n Making sure you have the right support team around you is vital. Again, Swoop can offer support in this area, as should your accountant or any other reputable professional advisor.<\/p>\n\n\n\n Raising equity for a business<\/a> as a sole trader is problematic because the founder cannot issue shares as a sole trader. Bobby Gleeson, Equity Funding Manager at Swoop says that if a sole trader wishes to raise equity, then they will need to restructure as an LLP:<\/p>\n\n\n\n \u201cInvestors are looking for a company that can grow tenfold. Clearly, small businesses right at the beginning of their journey will fit this description. But there also needs to be a demonstration that they are viable as a larger business, rather than just a good idea.\u201d<\/em><\/p>\n\n\n\n Sole traders are likely to be funded through personal finance or a family and friends round. Attracting more significant investment will mean seeking out and engaging with investors as well as undertaking the due diligence process. As this can take months, sole traders will find that a significant amount of time will be taken away from your usual activities.<\/p>\n\n\n\n Due to the need to issue shares, Bobby says that you will soon find it necessary to become an LLP or limited company. You may therefore wish to restructure your business sooner rather than later. <\/p>\n\n\n\n Business grants<\/a> are a popular way for businesses to obtain funding as they do not have to be paid back and can help boost a business especially in areas such as innovation, R&D and meeting sustainability goals. <\/p>\n\n\n\n Nanna Str\u00f8m Pedersen, Customer Success Manager at Swoop, says that although many business grants are exclusively to limited companies, there are still many that are available to sole traders: <\/p>\n\n\n\n \u201cEvery grant has different criteria, so the Swoop grant finder tool<\/a> is a useful place to check what you are eligible for. The most important thing is not necessarily what sector you are operating in but rather which area you are registered with. Some areas historically have a lot of grant funding to allocate where others have limited resources.\u201d<\/em><\/p>\n\n\n\n Nanna adds that before applying for grants, sole traders should understand the purpose for issuing grants in the first place: <\/p>\n\n\n\n \u201cGrants are often focused on a specific upcoming project, process improvement or a new employee. You have to match what you want to do with the help that is available for you, and if you are a very small one-person business, that may not be applicable to you. Eligibility criteria always varies and is always outlined in the grant brief, which you should read carefully to ensure you are not wasting your time before applying.\u201d <\/em><\/p>\n\n\n\n
Equity finance<\/h4>\n\n\n\n
Sole trader business grants<\/h4>\n\n\n\n