Funding for sole traders and the self-employed when the bank sees risk

If you work for yourself, you’ve probably heard some version of this from a lender: “We need to see two years of tax returns and a healthy profit.” The problem is that a self-employed person’s tax return is built to minimise tax, not to showcase cash flow. The business that earns well and spends smartly can look surprisingly thin on paper.

The good news is that many funders read the evidence differently.

Why do banks find self-employed borrowers difficult?

• Income varies. Payslips are predictable; invoices aren’t.
• Tax returns understate cash flow. Deductions and depreciation reduce taxable profit but don’t reduce the money that moves through the account.
• Mixed finances. Personal and business spending often share accounts, which makes assessment slower and more cautious.
• No separate entity. A sole trader’s personal credit and the business’s finances are one picture.

None of this says the business is unfundable. It says the bank’s standard template doesn’t fit.

What do other funders look at instead?

Evidence	What it shows	Routes that use it
Business bank statements	Real cash moving through the business	Cash-flow lending
Invoices to business customers	Money you’re owed and who owes it	Invoice-backed funding
Equipment or vehicles	A hard asset with resale value	Equipment finance
Property	Equity as a safety net	Property-secured loans
Card or online sales	Steady takings	Turnover-based funding

Illustrative example only. A self-employed electrician reports modest taxable profit after claiming a new van and tools. His business account, though, shows regular deposits from several builders and a steady rhythm of supplier payments. A funder that reads statements can see a business that is healthier than the return suggests.

What does a sole trader need to sort out first?

1. A separate business account. All takings in, all business costs out. It is the single biggest improvement you can make.
2. An ABN and current lodgements. The ATO says to contact it early if you can’t lodge or pay on time, and payment plans may be available. Quarterly BAS is due on 28 October, 28 February, 28 April and 28 July, and monthly BAS on the 21st of the following month.
3. A tidy invoice record. Know who owes you what.
4. A clear view of your own drawings. Funders understand that owners pay themselves; they want to see how.
5. A personal credit check on yourself. The OAIC notes you can request your credit report for free. Knowing what’s on it avoids surprises.

If you’d like a second opinion on how your finances read, tell us what you have and a specialist will point out the strongest and weakest parts.

What should you watch out for?

You are personally liable already. Business debts are your debts. Think about repayment before you borrow, especially if you offer your home as security.

Contract terms. ASIC’s small business resources highlight unfair contract term protections for standard form contracts. It’s still on you to read and understand what you sign.

Cost. Without a long record or security, pricing can be higher. Compare offers in total dollars using our total cost guide.

Over-reliance on one customer. If one customer supplies most of your income, funders notice and may cap what they’ll lend.

How should you present drawings and personal expenses?

Funders know a sole trader’s income is whatever remains after business costs, so they look at drawings, meaning the money you take out of the business. Regular drawings that are reasonable for the size of the business look healthy. Irregular large transfers can look like cash being squeezed. If you pay household bills from the business account, consider moving to a regular transfer to a personal account, so the business account shows only business activity.

A one-line note explaining your drawings, such as a regular fortnightly transfer, saves questions and demonstrates control over the business’s money.

What if you are thinking of setting up a company?

A company separates the business from you in law, but it does not make funding automatic. A new company has no trading record of its own, and funders will often still ask for personal guarantees from its directors. Moving a sole trader’s business into a company can also affect contracts, licences and tax. Talk to your accountant first, and consider timing. Restructuring just before a funding application can raise questions rather than answer them.

When is another route better?

If your issue is a short-term cash gap with business customers on terms, invoice-backed funding may be cleaner than a loan. If you want to buy a specific tool or vehicle, asset finance usually costs less than general funding. If the business is brand new, read funding a new business. And if you have significant equity in your home, property-secured funding is an option, with the clear risks that brings.

What’s the next step for a sole trader?

Tell us how you actually trade. The enquiry is about a minute, with no credit check, and your details are not sprayed to a heap of lenders. A real person with experience of self-employed finance reads it and calls you. Be exact about your income pattern, your assets and your existing commitments, so we can match you properly the first time. See if you qualify.