A handy guide to business loans for sole traders
4-minute read
Are you establishing or growing a small business? Or expanding a hobby into a side hustle or a full-time job? If you need funds to support your venture, a business loan for sole traders may be just the help you need.
What we’ll cover
Key take-outs
- There are many types of loans for sole traders
- Westpac offers specific business loans for startups
- Your choice of loan may depend on how much you want to borrow and for how long, and what you need the money for
- Sole trader loans can be either secured or unsecured – we explain the difference.
How can a sole trader loan help my business?
When you’re your own boss, with no partners or formal company structure, you’re taking complete responsibility for every aspect of your business – including its finances.
If you need money to buy a vehicle, tools, equipment or stock, you may not want to dip into personal savings to fund the purchases.
Many sole traders prefer to separate their business costs from their family finances, and that’s where small business loans can help.
What types of business loans are available?
You’ll find a wide variety of small business loans in the market, including leasing finance and bank guarantees. But here we’ll concentrate on the main types of loans and finance most favoured by sole traders.
Credit card
When you use a business credit card, you’re effectively ‘borrowing’ money for up to 55 days, before you either pay it all back or pay interest on the ‘loan’. It’s a flexible way of buying things you don’t currently have the funds for, but interest rates can be higher than for standard business loans.
Business overdraft
Also known as a ‘line of credit’, a business overdraft is where your bank allows you to access extra funds beyond the balance of your bank account, without having to negotiate for the ‘loan’ each time you need to support your cash flow temporarily. Overdrafts can be either secured or unsecured.
Business loan
A business loan is simply a pre-agreed sum of money lent to you for the benefit of your sole trader business. You can pay either fixed or variable interest on the loan; and choose when to make repayments – such as monthly, quarterly, or yearly.
Loans for vehicles and equipment
You can choose specialist loans to buy a car or truck for your sole trader business, or to invest in new equipment. Vehicle and equipment finance covers lump sum loans; leasing (where you use a vehicle for an agreed period, after which it goes back to the lender); and hire purchase (where you’re ‘renting’ a vehicle or equipment until it’s paid off and becomes yours).
What’s the difference between secured and unsecured business loans?
With a secured business loan, you’ll be asked to nominate an asset you own as security – to cover the loan if you’re unable to pay it off. The asset could be a property, inventory in your business, or account receivables.
An unsecured business loan doesn’t require security, so the lender will generally consider the cash flow and strength of a business, to decide if it’s safe to lend to.
Unsecured loans are generally for smaller amounts and have higher interest rates, reflecting the higher risk to the lender.
Can I get a business loan as a sole trader?
If you’re 18 or over and your business is based in Australia, you can apply for a Westpac business loan. Success will depend on a number of factors including your banking, borrowing and credit history (including personal loans), and your ability to provide an asset for security if necessary. Some Westpac loans can be applied for online by existing customers.
If you’ve been in business for less than 2 years, you may wish to consider a Westpac business loan for startups. It’s a simple option you can use to set up a workspace, buy equipment, or invest in technology or marketing. If you’re eligible, you can borrow between $10k and $50k for up to 5 years without security – and choose your frequency of repayments.
To sum up
Getting the right loan for your sole trader business comes down to matching your needs to one of the options available, while factoring in your ability to repay the loan in a way that works for you. A chat with a business lending specialist may help guide you through those options. You can make an appointment at your nearest branch or request a callback online.
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Things you should know
Westpac’s products are subject to terms, conditions, fees and charges; and certain criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs; and consider if the product is right for you.
The information in this article is general in nature and does not take your objectives, financial situation or needs into account. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.