Small Business Loans for Sole Proprietors

Q: Can sole proprietors get SBA loans?

Yes. SBA loans are open to all types of business structures, including sole proprietorships.

Q: What credit score do you need to get a business loan as a sole proprietor?

The credit score requirements will vary from one lender to another. As an example, an SBA loan for a sole proprietor might require a credit score of at least 640.

Q: What are the benefits of being a sole proprietor?

There are many benefits to running your business as a sole proprietor. These include simplified taxes, retaining control of decision-making, and no complicated paperwork or fees to file.

Small Business Loans for Sole Proprietors; If you're running your business as a sole proprietor, you may need a business loan. Learn all about the ins and outs of getting one here.

Susan GuilloryUpdated March 3, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

You can obtain financing even if you run a small business all by yourself.Every business, from the largest corporation down to the tiniest one-person operation, needs capital to operate and grow. That capital can help a business pay its expenses, purchase real estate, or take advantage of opportunities for expansion.When you’re running a small business as a sole proprietor, you may not have access to the same kind of cash that a larger business may, so you might consider financing as a way to get that capital.There are different types of small business loans available for sole proprietors that may be able to help you get access to cash when you need it.

What Are Sole Proprietorships?

Just in case you’re unfamiliar with the term “sole proprietor,” let’s clarify what that is first. A business can have one of several business structures:

Sole proprietorship
Partnership
Corporation
Limited Liability Company (LLC)
Nonprofit

The last three require special paperwork and a filing fee to set up. So if you haven’t done any of that and you don’t have a partner, your business is, by default, a sole proprietorship.One of the primary features of a sole proprietorship is that there’s no separation between the business and you as the owner. That means that you can take all the profits. But it also means that you are personally responsible for your business’s debts. In other words, if your business were ever to be sued and it didn’t have enough money to pay the debts, your personal assets could be used to cover those expenses.Nonetheless, if you’re looking for simplicity, a sole proprietorship provides it. There aren’t any complicated processes to deal with, and you retain full control of your company.

Pros and Cons

Before we look at small business loans for sole proprietors, let’s briefly explore some benefits and drawbacks to running your business as a sole proprietorship.

Pros	Cons
Requires no paperwork or fees (beyond business permits you may need)	Your personal assets could be seized if your business can’t pay its debts
You can file your business profits and loss on your personal taxes	Investors may not want to work with a sole proprietor

Now let’s look at loans typically available for sole proprietors so you can decide which is right for you.

Financing Options

Loans can infuse your business with capital but you need to present a strong case for yourself to qualify.

SBA Loans

Small Business Administration loans for sole proprietors are offered by a variety of lending institutions. The most popular is the 7(a) program, which can be secured for up to $5 million, depending on your qualifications. Interest rates vary depending on the lender, and terms range between 5 and 25 years. Typically, these loans can be more difficult than some other options to qualify for.

Bank Loans

Banks and credit unions offer sole proprietor loans, though they may be harder to qualify for than SBA loans, especially if your credit score is under 700. Rates and terms vary by lender. Loans from online banks may be a resource worth exploring.

Lines of Credit

Another funding option for sole proprietors is a line of credit. While loans provide you with a lump sum of capital all at once, a line of credit gives you access to a certain amount decided by the lender. Borrow a little or borrow it all, and then you only pay back what you’ve borrowed. You pay interest only on the amount you’ve drawn out. Rates and terms vary by lender. APRs on lines of credit vary, and there can also be fees attached to them.

Business Loan Alternatives

Loans and lines of credit like those listed above aren’t your only options for getting capital as a sole proprietor. Here are a few business loan alternatives to consider.

Business Credit Cards

Though they aren’t loans per se, business credit cards can allow you to make purchases for your company when you need to, even if you don’t have cash on hand. If you don’t have good enough credit for a business loan, having a credit card and paying your bill on time is one way to help you build a positive credit record for your business. Further down the road, you might be able to qualify for other financing options.

Crowdfunding

Another option for getting access to capital, with the added benefit that you might not need to pay the money back, is small business crowdfunding. A company like yours can set up a campaign on one of several crowdfunding sites to raise money for a new product line, for example. Anyone can donate to your project, and you don’t have to pay that money back. You may, however, be required to offer perks, like products or t-shirts with your logo on them.

How to Qualify and Apply for a Business Loan for a Sole Proprietor

If you’re considering applying for a business loan for a sole proprietor, start by understanding what each particular lender you're interested in requires for the application process and make sure you qualify first.Some lenders list the specific credit scores you need to have to qualify, as well as how long you need to have been in business. Others do not. But with a little research online, you may find other websites that tell you what a particular bank requires, even if the bank’s website doesn’t.Before applying, get your business documents and information in order so you can streamline the process. Some banks may require financial documents like profit and loss statements, so getting a sense of what a bank needs and having those documents ready to go will make the application go faster.Recommended: 5 Essential Nonprofit Financial Documents

Working with Lenders

You’re not guaranteed to be approved for a loan from any one lender, nor get the best rate, so it’s a good idea to find several lenders you’d like to apply with. Taking these steps before you apply may help improve your chance of finding a loan that you like.Many lenders offer the opportunity to prequalify, meaning that you can provide a few details about yourself and your business to see if you’d be eligible for financing. This should not impact your credit, and it can help you identify which lender offers the best terms.Also, you may want to educate yourself on common business loan terms so you know whether the rates you are offered are competitive or not. Just because you’ve done business with a bank for a decade doesn’t mean it will offer you the lowest interest rate possible.Finally, before applying, check your credit scores and see where they stand. It’s very helpful to have a business credit score established. If not, your personal credit score can be referred to.

The Takeaway

Taking out a small business loan for a sole proprietor can give you access to the capital your business needs to thrive. There are a variety of funding types available, and with so many options, it’s just a matter of choosing the one that best fits your business’ needs.Don’t have the time to research a lot of different loans? You can fill out one simple form to compare offers with Lantern and get offers from our network lenders.

Frequently Asked Questions

Can sole proprietors get SBA loans?

What credit score do you need to get a business loan as a sole proprietor?

What are the benefits of being a sole proprietor?

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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