Business Loans for Sole Proprietors

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If you’re a sole proprietor, you’re essentially running the show on your own. It’s the simplest type of business structure — no partners, no LLC, no shareholders — just you calling the shots.

Lenders can be cautious about working with sole proprietors since there’s less separation between personal and business finances, but you have options and there are ways to increase your odds of getting a business loan. And if traditional loans don’t work for you, there are other methods to fund your business, like grants, crowdfunding or even personal loans.

Can you get a business loan as a sole proprietor?

You can get a business loan as a sole proprietor, but it might take more effort to prove you’re a good candidate for financing. Since sole proprietors don’t have the same legal or financial separation between personal and business assets as LLCs or corporations, lenders may see them as riskier borrowers. But that doesn’t mean it’s impossible — the key is being prepared.

What types of loans should I consider?

When you’re a sole proprietor, the right type of loan comes down to what your business needs most. Are you looking to make a big purchase, like equipment? Do you need extra cash to cover day-to-day expenses? Are you wanting to purchase real estate with a commercial loan? Or are you just getting started and need some seed money?

Here’s a snapshot of your five top loan options. Each has strengths and weaknesses, so it’s all about finding the one that fits your goals.

Can sole proprietors take out personal loans for their businesses?

Sole proprietors can use personal loans to fund their businesses, and in some cases, it might be the better option. Personal loans are often easier to qualify for than business loans, especially if your business is new or you don’t have a strong credit history tied to it.

Since personal loans are based on your individual creditworthiness, they can provide a quicker path to funding without requiring extensive business documentation.

How to qualify for a sole proprietor business loan

Qualifying for a business loan as a sole proprietor takes a little preparation, but it’s within reach if you take the right steps. The process comes down to three key areas: understanding your finances, meeting lender requirements and organizing your documents.

Let’s break it down:

1. Evaluate your business finances

Knowing where you stand financially helps you make better decisions about how much to borrow, whether you can comfortably repay a loan and what kind of loan will work best for you.

Here’s what to focus on:

• Your finances. Reviewing your profit and loss records and tax returns helps you identify whether your business is financially stable enough to take on a loan — or if you need to address some issues first.
• Cash flow. Cash flow is the money moving in and out of your business. Fluctuating cash flow can affect your ability to repay a loan, so understanding it helps determine if you can manage fixed monthly payments or need a flexible loan option, like a line of credit.
• Operating costs. Review your regular expenses, including rent, payroll and supplies. Understanding your operating costs helps you figure out how much money you need to keep your business running smoothly and how much to borrow without overextending.
• Debts and assets. List any debts your business already has along with your assets. If you have a lot of existing debt, be cautious about borrowing more. On the flip side, assets like equipment, inventory or unpaid invoices could help you secure a loan.

2. Meet common eligibility requirements

When you’re applying for a business loan as a sole proprietor, lenders want to feel confident that you can handle the responsibility of repayment. While every lender is different, most consider the same general factors to decide if you qualify.

Here’s what you’ll need to think about:

• Credit score. Without a business credit history, lenders use your personal score to measure financial reliability. A score of 670 or higher may secure better rates and larger loan amounts. If your score needs improvement, consider paying down debts or improving your payment habits before applying.
• Time in business. Lenders like to see businesses with a track record of at least one to two years. If you’re newer, don’t worry — just know you may have fewer options or need to explore a personal loan instead.
• Revenue and cash flow. Lenders want to see that you’re bringing in enough income to stay afloat while handling the extra expense of a loan. For seasonal or inconsistent cash flow, consider loans with flexible repayment terms.
• Collateral. Some lenders require collateral, like equipment, inventory or even property, to secure the loan. While not always necessary, collateral can strengthen your application and help you negotiate better terms.

3. Prepare the financial documents you’ll need to apply

Having your financial documents ready can streamline the loan application process and improve your chances of approval.

Here’s a breakdown of the key documents you’ll need and why they matter:

• Tax returns. Lenders typically want to see at least two to three years of personal and business tax returns to evaluate your income and help determine your business’s overall performance and stability.
• Balance sheet. This financial statement gives lenders an overview of your business’s financial position at a specific time, helping them assess your financial management.
• Profit and loss statement (P&L). The P&L statement tracks your revenue and expenses over a set period, helping lenders evaluate your business’s profitability and ability to repay the loan.
• Cash flow statement. Cash flow statements show the actual money moving in and out of your business, including sales revenue, expenses, loan payments and other transactions. Lenders review this document to see if your business generates enough cash to cover its expenses and repay the loan.

What if I don’t have financial documents?

If you’re starting a new business or can’t provide documentation, you’ll find it much harder to get a loan from a bank. You may need to opt for a personal loan or a secured business loan that requires collateral instead. You could also consider an online lender. These lenders often have less stringent requirements for business loans than banks do.

Lending challenges for new sole proprietors

For new sole proprietors who are just starting a business, the lack of a business track record can make traditional lenders hesitant. They like to see things like years of financial history, tax returns and proven revenue, which new businesses often don’t have. This requirement can feel like a catch-22: You need funding to grow your business, but you don’t have the history to secure it.

The good news? Online lenders and microloan programs are often more flexible, focusing on your personal credit or future potential rather than strict financial documentation.

You can also strengthen your application by offering collateral, like equipment or assets, to reduce the lender’s risk. And while it might take extra effort, creating a business plan and raising your credit score can also improve your chances of being approved as a new sole proprietor.

Tips to improve your chances of getting a loan

If you’ve been running your business for a while, you already have a track record to show lenders — but that doesn’t mean approval is automatic. These tips will help you present a strong application and improve your chances of securing the loan you need:

• Refine your business plan. Even for established businesses, a solid business plan is key. Highlight your successes, market position and growth strategy, and include updated cash flow projections and plans for using the loan to achieve your goals.
• Polish your financial records. Make sure your financial documents are accurate, up to date and easy to understand, including tax returns, profit and loss statements and cash flow reports. Clear records help showcase your stability and success.
• Focus on your credit score. As an established business owner, your personal credit still matters. Pay down debts, avoid new credit inquiries and ensure your credit report is error-free. A strong credit score can lead to better loan terms.
• Show consistent revenue and cash flow. Lenders want to see that your business generates steady income. Use your financial records to show reliability and address seasonal fluctuations or recent dips to reassure them you can manage repayments.
• Offer collateral if needed. If your loan application feels borderline, offering collateral — like business equipment, property or inventory — can help tip the scales in your favor. It also shows lenders you’re confident in your ability to repay.
• Choose the right loan product. Match the loan type to your business needs, such as a term loan for major expansions and a line of credit for managing cash flow. Choosing the right product shows lenders you’ve done your homework.

Are there other non-loan options for sole proprietors?

Funding isn’t limited to loans. As a sole proprietor, you may not be able to sell stock like a corporation, but there are other ways to raise capital. Non-loan options can be especially appealing if you want to avoid debt or don’t meet the qualifications for traditional financing.

Angel investors

Angel investors are individuals who invest their own money into businesses they believe in, often in exchange for equity. They’re particularly common for startups or businesses with strong growth potential. For sole proprietors, this means giving up partial ownership in exchange for funding, but it also often comes with valuable guidance and industry connections.

• Example: A tech entrepreneur looking to expand their app development company might pitch to an angel investor who provides $50,000 in exchange for a 15% equity stake.
• Best for: Businesses with high-growth potential, especially in industries like tech, renewable energy or healthcare. Also great for those who value mentorship and industry connections alongside funding.
• Tips: Look for angel investor networks like AngelList or local investor groups in your area. Attend networking events or pitch competitions to connect with potential investors.

Business grants

Business grants are essentially free money — funding you don’t have to pay back — but they usually come with strict eligibility requirements and a competitive application process. Federal, state and local governments, as well as private organizations, offer grants for various purposes, such as supporting small businesses, promoting innovation or fostering economic development.

• Example: A sole proprietor running an organic skincare business receives a $25,000 grant from a local economic development program to expand production capacity and hire additional staff.
• Best for: Businesses that meet specific eligibility criteria, such as women-owned or minority-owned businesses, startups in innovative fields or businesses contributing to local economic growth.
• Tips: Tailor your application to the grant’s purpose and be prepared to explain how the funds will directly impact your business. Websites like Grants.gov and local economic development agencies are great places to start.

Crowdfunding

If you have a compelling idea and the ability to market it, crowdfunding can help you raise funds directly from your supporters or community. Platforms like Kickstarter, GoFundMe and Indiegogo allow you to pitch your idea online and invite people to contribute money, often in exchange for perks or early access to your product.

• Example: A baker launching a specialty vegan cookie line could use Kickstarter to raise $10,000 for equipment and offer backers rewards like free samples or discounts.
• Best for: Creative projects, product launches or businesses with strong community appeal.
• Tips: A successful campaign requires a strong story, clear goals and a marketing plan to drive traffic to your crowdfunding page.

Bottom line

Getting financing as a sole proprietor might feel like a challenge, but it’s absolutely doable with the right approach. It all comes down to preparation. By planning ahead and staying organized, you can find the funding that works for you and set your business up for success. Remember, there’s no one-size-fits-all solution — take the time to find what fits your goals best.

Frequently asked questions

Why is it more difficult to get a business loan as a sole proprietor?

Since sole proprietors have little separation between business and personal finances, banks and financial institutions often view them as risky. If a sole proprietor loses a key contract, gets sick or cannot continue business, the loan will likely go unpaid.

What is the easiest business loan for a sole proprietor to get?

The easiest business loan for a sole proprietor to get is usually from an online lender or a microloan program. These lenders tend to focus on your personal credit and cash flow instead of needing years of business history or perfect financial records.

Can a sole proprietor get a business loan with bad credit?

Having bad credit can make it harder to get a loan. This factor is especially true if you’re a sole proprietor who’s trying to start a new business. You may need to consider the following options:

• Getting a bad credit business loan
• Accepting a higher interest rate
• Borrowing with alternative lenders with more flexible eligibility criteria

To make sure you get accurate and helpful information, this guide has been edited by Megan B. Shepherd as part of our fact-checking process.

Written by

Christi Gorbett

Contributor

Christi Gorbett is a freelance writer with more than eight years of experience and a master's degree in English. She’s created a wide range of content for banks, financial product comparison sites, and marketing companies on topics like small business loans, credit cards, mortgages, retirement planning, lender reviews, and more. As a former teacher, Christi excels at making complex financial topics accessible and easy to understand. Her interest in finance grew when she returned to the U.S. after living in South Korea for nearly a decade. This shift was driven by several personal financial challenges: rebuilding her financial base after the move home, starting her own business, and catching up on retirement savings. These experiences deepened Christi’s practical understanding of finance and intensified her interest in the field. See full bio