Business loans for sole proprietors

Can a sole proprietor get a business loan?

Yes. Sole proprietors can use business loans to start a new business, purchase or expand an existing business, meet a sudden increase in demand or buy new equipment and inventory. However, lenders are sometimes hesitant to give business loans to sole proprietors because of the risks involved, which include smaller revenues and the possibility that sole proprietors may become unwilling or unable to continue operating their businesses.

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Name	Product	Interest Rate	Loan Amount	Loan Term	Minimum Revenue	Minimum Time in Business	Loans Offered
OnDeck Business Loan		8.00% – 29.00%	$5,000 - $300,000	6 - 18 months	$100,000/year	6+ months	Secured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000. OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.	Go to site More Info	Compare	loading Fetching your data...
Merchant Growth Business Loan		12.99% - 39.99%	$5,000 - $500,000	3 - 12 months	$10,000 /month	6 months	Unsecured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales. Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.	Go to site More Info	Compare	loading Fetching your data...
Loans Canada Business Loan		6.60% - 29.00%	$4,000 - $500,000	3 - 60 months	over $10,000/month	100 days	Unsecured Term	To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year). Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.	Go to site More Info	Compare	loading Fetching your data...

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Why is it challenging for sole proprietors to get business loans?

Lenders often view sole proprietorships as risky investments, because sole proprietors have very little separation between their business and personal finances. If a sole proprietor loses an important contract, gets sick or can’t continue their business for some reason, lenders could easily go unpaid.

Sole proprietorships also often have lower annual revenues than larger enterprises, which means many small businesses may struggle to meet lenders’ minimum lending requirements to qualify for a loan. While getting a business loan may be a bit trickier, you still have multiple loan options including overdrafts, lines of credit and invoice financing.

Consider your business’s needs, financial position and the purpose of the funds when evaluating your options. Don’t be afraid to reach out to experts or other successful business owners in your industry for advice on using financial leverage to help your business succeed.

6 types of loans for sole proprietors

Alternative funding for sole proprietors

Not all of your capital has to come in the form of loans. Although a sole proprietor won’t be able to sell stock like a corporation, you can still receive capital from other sources.

• Angel investors. An angel investor can help you fund a startup or existing business. If your application is approved and you receive funds for your business, the angel investor will own equity in your company.
• Business grants. Both the federal government and private organizations offer grants that can help business owners start or expand a business. This is a good option if you qualify because you won’t have to pay back your grant money.
• Crowdfunding. If you have a popular idea and know how to market your products online, crowdfunding can be a quick way to get community support behind your business and raise funds.

What do I need to consider before applying for a loan?

The length of time your business has been operating and its annual revenue will help narrow down your options. Startups will have different needs than businesses that have been running for years. The more you know about your business plans, expenses and cash flow, the better equipped you’ll be to get the right loan.

Established sole proprietor

• Your finances. As an established business, you should have records highlighting your profits and losses and at least two years of tax returns to show your lender. The state of your accounts has a big impact on your loan options.
• Cash flow. How much cash will your business have on hand in the coming months? Do you have personal funds to use if you’re short? If you’re facing a temporary cash shortage, you might opt for a line of credit over a lump sum loan.
• Business costs. Factor in your operating costs into your estimates for the future and work out how much you need to borrow.
• Debts and assets. Debts may limit what you can borrow, but you can use assets (such as invoices or purchase orders) as collateral to secure a business loan.

Startup business owner

If you’re starting a new venture, you’ll face some challenges when looking for financing – most small business lenders won’t lend to businesses that have been operating for less than a year. Instead, you may need to consider startup financing. You’ll need the following to apply for a loan:

• A solid business plan. A detailed, clear business plan is reassuring to a lender, and you shouldn’t think of becoming a sole proprietor without one. Be sure to include an analysis of your competition, your future plans and cash flow predictions.
• Collateral. Having some form of collateral, like cash assets or a residential property, improves your chances of getting a loan since you don’t have a business history to fall back on.
• Personal credit history. Lenders will want to see a good or excellent credit score of at least 650 from a potential borrower. This helps assure the lender that you’re financially responsible and unlikely to default on your loan.
• Skills and experience. Your career experiences and skills are another metric lenders use to assess the strength of your proposed business. Fix up your resume and, if needed, brush up on the qualifications or skills essential to your trade.
• Cost estimates. Try to estimate what your business costs will be. You need to compare existing businesses and do your research.

Documents you need to apply

• Notices of Assessment from recent business tax returns. Having at least two years of tax returns gives lenders a clear idea of how your business looks financially.
• Balance sheet. This simple financial statement sums up the total of your assets, liabilities and capital.
• Profit and loss statement. Usually covering a fixed period or quarter, this statement measures your profits and losses by taking your gross profit and subtracting your operating expenses.
• Cash flow statement. This statement accounts for all the money coming in and out of your business. This includes all purchases and expenses plus all money from sales, loans and investments.

What if I don’t have these financial documents?

It’ll be challenging to get a bank loan if you’re a startup and can’t provide all the required documentation. You might want to consider getting a personal loan, a secured business loan (which requires collateral) or a loan from an online lender instead. Online lenders often have less stringent requirements for business loans compared to banks, but you’ll still need to meet minimum requirements for annual revenue and time in business.

No-paperwork business loans from online lenders

Bottom line

Although it can be more difficult to get a business loan as a sole proprietor, you still have options. Consider your business’s needs carefully, prepare all the relevant documents and don’t be afraid to compare and contact multiple lenders to find the right loan for your needs.

Frequently asked questions

• Can I get a business loan with bad personal credit?

  Having bad personal credit can make it harder to get a loan. This 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 from alternative lenders with looser lending rules

• Can a temporary resident get a business loan?

  Many lenders only provide business loans to Canadian citizens or permanent residents. Temporary residents, who may only be in the country for a few years on specific visa types, should look for lenders who don’t have this restriction.

• What happens if I can't repay my loan?

  If your business is struggling and you can’t repay what you’ve borrowed, there are several things you can do:

  • Try to reduce your overhead costs and bring in more income.
  • Talk to your lender and try to refinance or renegotiate the terms of your loan.
  • Sell your car, home or other assets to pay off the loan.
  • Declare bankruptcy – but only as a last resort.

  You may also want to read up on what happens when you default on a business loan.

• Can I use a credit card to finance my business?

  Credit cards can be a good way to finance your business, especially if you foresee earning enough income to pay off the balance within a few weeks or months. You can use a business credit card for expenses up to a certain limit, however any unpaid balance after the grace period will accrue interest. Business credit cards won’t suit every type of sole proprietor, but it can be a good way to access credit when needed. You can also earn rewards such as points, miles or cash back, depending on the card.