Differences in Lender Criteria
Limited companies benefit from filed accounts (even micro-entity format), clear financial history visible to lenders and a legal structure that lenders are familiar with. Most specialist asset finance lenders have streamlined decision processes for limited companies.
Sole traders have no filed accounts - lenders rely on self-assessment tax returns, bank statements and management accounts. The pool of willing lenders is smaller and criteria more variable. Most high-street funders decline sole traders under 3 years trading.
Rate Differences
Typical rate differential: sole traders pay 1.5–3.0% more than equivalent limited companies for the same asset. A limited company paying 7.0% for a £60k welding cell might expect to pay 8.5–10.0% as a sole trader. This reflects the additional risk and credit assessment complexity for lenders.
Personal Guarantee Requirements
For limited companies: directors are typically required to provide PGs - usually up to 100% of the facility value. For sole traders: personal liability is unlimited and automatic - there is no separate PG requirement as there is no legal distinction between personal and business debt.
Sole Trader vs Ltd Company - £60k Welding Cell
Asset: Lincoln Electric robotic welding cell, £60,000 Limited Company (5 years trading): Rate: 7.2% | Monthly: £1,190 | Term: 60 months | PG required: Yes Sole Trader (5 years trading): Rate: 9.8% | Monthly: £1,280 | Term: 48 months (shorter term required) Total extra cost vs Ltd structure over term: approx. £8,400