The personal liability question

A sole trader and their business are the same legal person. A £30,000 business loan is £30,000 you owe, secured against whatever the lender can reach. If the business cannot pay, you pay, and personal bankruptcy is the backstop.

A limited company is separate. In theory the company owes the money and the director does not. In practice, most small company borrowing comes with a personal guarantee from the directors, so if the company fails the lender comes to you anyway. The limited liability shield is thinner than people think once a guarantee is signed.

The regulation difference

Lending to sole traders and small partnerships is regulated as consumer credit up to £25,000. That means FCA rules on clear terms, fair treatment and access to the Financial Ombudsman. Above £25,000, business-purpose lending to sole traders is unregulated, and lending to limited companies is unregulated at any amount. The FCA explained the boundary in evidence to Parliament: below the line you have consumer-style protection, above it you are on your own with the contract.

What changes in practice

Lenders assess a sole trader much like an individual: personal credit score, bank statements, Self Assessment tax calculations and SA302s as proof of income. A company is assessed on its accounts, its own credit file and its cash flow, plus the personal credit of the guarantors.

A sole trader with two or three clean years of Self Assessment history is very lendable. One with six months of trading and thin records will find the doors narrower, which is where government-backed schemes come in.

Sources

All pages checked 20 October 2026.

• FCA evidence to Parliament on SME lending: https://committees.parliament.uk/writtenevidence/51703/html/
• Apply for a Start Up Loan: https://www.gov.uk/apply-start-up-loan
• Growth Guarantee Scheme: https://www.gov.uk/business-finance-support/growth-guarantee-scheme

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