Asset Finance and Sole Traders

26th April 2022

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At the start of 2021, there were over 3.2 million sole traders registered in the UK, by far the biggest form of business group in the United Kingdom.

The sole trader business model can be used by many types of business, and when you think of a sole trader, you’re likely to envision a tradesman such as a plumber, decorator, or hairdresser, but in reality, they can be anything from small shop owners, or manufacturers, consultants or artists, all with different needs, goals, and priorities.

While operating as a sole trader doesn’t necessarily mean that the business owner is working alone, in fact, a sole trader can be an employer, it does mean that the responsibilities of the business fall solely on the individual. It is for these reasons why sole traders may find it difficult to obtain funding when they require it.

Sole Traders and Traditional Bank Loans

Unlike limited companies, sole traders do not have to submit paperwork via Companies House, they must, however, maintain accounting records, pay income tax, and file a self-assessment return with HMRC every tax year. And, as the HMRC treats the personal and business income as one in the same, sole traders have what’s known as unlimited liability, meaning if their business becomes insolvent or is sued, then the owner is personally liable to creditors.

This liability and blurred lines between the person and the business, which makes it difficult for sole traders to gain funding from traditional lending sources.

While it is possible for sole traders to acquire business loans, the nature of their business structure makes them an elevated risk to many lenders and the individual business owners may not want to take the risk with their personal finances.

As with any other type of commercial loan, a business loan to a sole trader will be reliant on having a good credit history and 3- 6 months business bank statements (depending on the lender), which can be difficult for new businesses to acquire, lowering their chances of approval.

Asset Finance and Sole Traders

Asset finance is often an attractive alternative to sole traders for a number of reasons.

Flexible options

Asset finance is a flexible funding solution for businesses to access equipment machinery and vehicles their business requires without compromising cashflow.

There are a number of different forms of asset finance agreements including:

Hire Purchase

Finance Lease

Operating Lease and Contract Hire

Types of assets that can be funded

Asset finance can be used by businesses to acquire a vast amount of assets including machinery, vehicles, I.T equipment, Telecoms, security equipment, catering equipment, and many more.

Asset Security

One of the main reasons asset finance is an attractive option for sole traders (and the funders) is asset security.

Unlike traditional bank loans, the value of the finance agreement is made against the asset rather than the business, meaning that if a business was unable to make repayments, the bank or funder could recoup their money by taking procession of the funded asset.

This reduces the risk significantly for the funder and increases the chances of the sole trader acquiring the funding they need to access equipment.

If you’d like to know more about how we can help sole traders, please do not hesitate to contact a member of our team.

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