Sole Traders in the UK

Imagine if Brazil, the most crowned Football World Cup winners with 5 trophies, had no fans in the stadium to support them playing. Or if no one cared that Miroslav Klose of Germany had the record for most goals scored in Football World Cups with 16…

Well, that’s what it feels like to be a sole trader in the UK. They are the leading way someone can start working as a business owner, with over 3.2 million sole traders operating, or 56% of the UK’s private sector business population. Yet, despite being the majority of the populus they’re overwhelmingly the least supported when it comes to access to funding, and finance providers rarely understand their needs.

The macroeconomic situation

This is against a backdrop of one of the most challenging times to operate as a small business. The recent changes impacting limited company taxation mean that a business turning over £50k and paying director wages via dividends, will now have to pay £5k more per year vs. an employed individualkil. This will likely turn people away from incorporating as a limited company, and instead push them into a sole trader structure.

Arguably, the environment has all the fertile ground needed, but it’s severely lacked any fundamental shift in understanding from a financing perspective. The gig economy has fueled a resurgence of entrepreneurship from the 2008 financial crisis, and the way technology has enabled a distributed business ecosystem is something the UK should stand up and be proud of. However, the definition of SME support has focused - especially during the plentiful COVID relief schemes - predominantly on limited company infusion.

Finance for sole traders

However, the oil tanker that is SME finance is finally starting to turn and it’s sole traders who are the tugboats forcing the issue. A voice of 3.2 million-strong business owners is starting to be heard.

A sole trader might be tempted to take out a personal loan to support their business, but those are generally meant for personal expenses, like medical bills, and using it for business purposes might breach loan conditions. The alternative, sole trader loans are now starting to be made more readily available through SME loan providers. Just take a look at some of the alternative lender websites, and you’ll see a number of different options available in the market. But these often require complicated documents (up to 24 months of VAT returns as standardised financials aren’t a customary feature for most sole traders), and are issued at interest rates which actually make it more cost-effective to take a personal loan from their bank instead.

The MarketFinance solution

The wave of embedded finance options is starting to move this proverbial ship forward, as options available at MarketFinance through our pay later financing for small businesses mean that finally, sole traders can get instant access to credit at the point of sale when procuring their key business items online.

By capturing some simple details of the individual behind the sole trader at the point of sale, we can enable up to £10,000 in instant credit to sole traders to power on and push forward with their business. And by using this embedded credit, sole trades can reuse this credit line time and time again, without the need to have lengthy applications and take time away from running their operations.

This financing is used specifically for supporting goods to sole traders - effectively allowing them access to trade credit to fuel their growth - an avenue for finance that has never been made available before.

Whilst we can’t solve the conundrum overnight, through making credit available at the point of checkout in an instantaneous manner, we can at least add one more tugboat to the mission of getting this SME tanker moving in the right direction.