Company vs sole trader for borrowing: how lenders treat each structure

Ask three accountants whether you should trade as a sole trader or a company and you’ll get answers about tax, liability and admin. Ask a lender and you’ll get a different list: how long has this ABN been trading, who is on the hook, and what can we take if it goes wrong?

The two lists don’t always agree. This guide is about the second one. It covers what changes when the borrower is you, personally, compared with a company you own, and the borrowing consequences of switching.

What actually differs when you borrow as a sole trader?

For a sole trader there is only one legal person: you. No separate entity exists to lend to, so the loan is in your name, your ABN is attached to it and your assets and personal credit file are in play from the start.

In practice that has four effects:

• No extra guarantee is needed. You are already personally liable. Lenders don’t have to ask you to guarantee your own debt, which keeps the paperwork short.
• Your personal credit file is the credit file. A default or a run of enquiries on your file is directly relevant. See how to read a credit report to see what they see.
• Security comes from your personal assets. Home equity, a vehicle, plant you own outright. There is no business-wide charge to give because the business isn’t a separate owner of anything.
• The business can’t be sold off separately from you. A lender’s remedies run against you as an individual, including any home you’ve offered.

For small unsecured loans and equipment finance, none of this is a barrier. Lenders approve sole traders every day, and our page on sole trader business loans covers what they look for.

What differs when a company borrows?

A company has its own ABN and ACN, owns its own assets and owes its own debts. Business.gov.au notes that company members generally aren’t liable for its debts, because the company itself carries them.

That shapes the lender’s approach in several ways:

• Director guarantees are common. A newer or smaller company has little to fall back on, so lenders often ask each director to guarantee the loan personally. This is where the “limited liability” benefit most often disappears in practice. The glossary entry on personal guarantees and our guide to business loans and personal guarantees explain the mechanics.
• Security can be business-wide. A company can grant a general security agreement over all its present and future assets, which lenders register on the PPSR. A sole trader has no equivalent.
• Financial statements are more formal. A company lodges its own tax return and keeps a balance sheet, which gives lenders cleaner numbers. Mixed personal and business spending, a feature of many sole trader files, is easier to untangle.
• Directors’ personal files still count. Lenders commonly check them even when the borrower is the company.

Which structure do lenders prefer?

There isn’t a universal winner. The better answer is “it depends on the product”:

Loan type	Sole trader	Company
Small unsecured loan	Assessed on trading history and bank statements	Same, plus director checks
Equipment finance	Equipment is the security; personal credit matters	Equipment is the security; guarantees common
Secured against property	Property in your own name is straightforward	Property owner may need to be a guarantor or mortgagor
Larger cash flow facility	Harder: lender has only personal assets to look at	Easier: general security agreement and formal accounts
Invoice finance	Possible, usually at modest limits	Common; debtor book and charge over receivables

Where borrowing needs stay small and the business is simple, a sole trader rarely loses out. As the facility size grows, the lender’s wish for a clean borrower, a defined set of assets and formal accounts tends to favour a company.

Does switching structure reset your borrowing clock?

Often, and this is the point most owners learn too late.

When a sole trader sets up a company, the company normally gets a new ABN and ACN. Many lenders set minimum trading history in terms of the ABN’s registration date, commonly somewhere around 6 to 24 months depending on product. A company created last month isn’t a 10-year business, even if you are the same person running the same customers from the same ute. Some lenders will recognise the prior history if you can show continuity: sole trader tax returns, bank statements and the same customers and premises. Others won’t.

A few things follow:

1. Ask before you switch. If a loan is on your horizon in the next year, ask the lender (or your broker) how they would treat the new company’s history.
2. Keep the sole trader paper trail. Tax returns, BAS and bank statements from the earlier years are your evidence of continuity.
3. Don’t assume the assets move for free. Transferring equipment or a business name into the company can have tax and sometimes stamp duty consequences, and existing finance contracts often can’t simply be moved. Your accountant should map this out. There are small business restructure rollovers in the tax law, but eligibility rules apply.
4. Check the contracts. Leases, supplier accounts and existing finance are in your name. They need to be novated or replaced.

If the change happens to land on a patchy year, explaining a bad year to a lender is worth a read, because the story you tell matters.

What about tax, and how does it bear on borrowing?

Tax is not a lending issue in itself, but it affects the numbers lenders read.

• A sole trader pays tax on the whole net profit at personal rates, whether it’s drawn or not.
• A company pays company tax. For the 2025–26 year the ATO’s base rate entity rate is 25% where aggregated turnover is under $50 million and no more than 80% of assessable income is passive; otherwise 30%. Profit left in the company is after company tax, so retained earnings build on the balance sheet.

For borrowing, retained earnings are a plus: they show a lender the business has kept its profit and built equity. That is one reason companies with several profitable years look strong. But the pay you take from a company also needs to be set up properly. Read how to pay yourself as a business owner before you commit.

Who suits which structure for borrowing?

A sole trader structure tends to suit:

• A new or small operation where borrowing is modest and stays unsecured or equipment-secured.
• Owners with strong personal credit and property in their own name.
• Businesses where simplicity matters more than separation.

A company structure tends to suit:

• A business planning larger facilities, acquisitions or multiple lenders.
• Owners with partners or investors, where ownership needs to be split cleanly.
• Businesses that want to build retained earnings and a balance sheet over several years.

Neither is wrong. Plenty of businesses start as sole traders, borrow sensibly and change structure when the size of the facility justifies it.

A short decision checklist before you choose or change

• Do I expect to borrow in the next 12 months, and for how much?
• Will a lender count my trading history from the old ABN, the new one, or both?
• Am I prepared to guarantee a company’s debts anyway?
• Do my current contracts and finance move easily into the new entity?
• Has the tax effect of moving assets across been worked through with my accountant?
• Is my personal credit file in the shape I want it?

If you operate through a trust, the picture is different again. See how trusts affect business borrowing.

What if you already borrow and a bank has said no?

Banks are often the cheapest source of money, and when you fit their criteria, they deserve a serious look. Structure rarely changes a bank’s answer on its own. Trading time, financials and security do.

If a bank has declined you, that’s often a mismatch with the policy rather than a verdict on the business, and other lenders will take a different view of the same file. You can start an enquiry at any point, and it won’t touch your credit file.

Ready to test the structure you have?

Nobody has to restructure just to ask what’s possible. Tell us how you trade today (sole trader, company or trust), how long the ABN has been live and what the money is for. That’s roughly a minute of typing, and your credit file stays untouched while you do it. We keep the enquiry in-house; it doesn’t get blasted to a list of lenders, so your phone stays quiet. One of our people reads the details and phones you. Get the entity name and ABN right and we can usually line up a sensible option on the first try.

Check what my structure can borrow →