# Should I switch from sole trader to limited company before applying for finance?

*Source: https://credicorp.co.uk/support/sole-trader-to-limited-company-before-finance/*

If you trade as a sole trader and have found you cannot borrow from us as you are, you may be wondering whether to incorporate — to set up a limited company — before applying. It is a reasonable question, but it is a real business decision with tax, legal and administrative consequences, not just a box to tick for a loan. This guide sets out what changes when you incorporate, what it means for borrowing from us, and where to get the proper detail. Incorporating does not automatically make you eligible, and you should not do it for that reason alone.

## Why your structure affects lending with us

We lend to UK limited companies and LLPs — bodies corporate — for business purposes, and we lend to the company rather than to its director personally. We cannot lend to a sole trader as structured, because a sole trader is not a separate legal person: there is no company to lend to, and lending to the individual would be a different kind of regulated activity entirely. We explain how the structures compare for borrowing in [limited company, LLP or sole trader: lending eligibility compared](/support/limited-company-llp-sole-trader-eligibility/). So incorporating changes the picture because it creates a separate entity we can lend to — but it is one factor among several, not a guarantee.

## What incorporating actually changes

Becoming a limited company is more than a name change. The main shifts are:

- **Limited liability.** The company becomes a separate legal person, so in most cases your personal assets are protected if the business runs into trouble — though directors still have duties and there are narrow exceptions.

- **Tax.** Company profits are subject to corporation tax, and you take money out as salary and/or dividends rather than simply drawing profits. This can be more or less efficient depending on your numbers; it is not automatically cheaper.

- **Administration.** A company must file accounts and a confirmation statement at Companies House, keep statutory records, and meet reporting deadlines. There is more paperwork and more visibility.

- **Public record.** Your company’s existence, directors and filings are on the public register.

## What it does not change

Incorporating does not, by itself, make you a good lending prospect. A brand-new company has little or no trading history and may have a thin business credit file, and we assess affordability on the company — its turnover, bank-account history and business credit file — not on your personal income. So a freshly formed company can still be declined, or offered less, simply because there is not yet enough to assess. Forming a company the week before you apply will not conjure a track record. If and when you do qualify, you can see what we currently offer, with the real amounts, terms and costs, on [our business loans page](/business-loans/).

## Weigh it as a business decision

The honest framing is this: incorporate if it makes sense for your business overall — for liability protection, tax position, credibility with customers and suppliers, or growth plans — and treat improved access to company lending as a possible benefit, not the reason. Switching purely to chase a small, short-term loan rarely stacks up, especially once you account for the running costs and admin of a company.

## Where to get the detail and how to incorporate

The mechanics of forming a company, and your filing duties afterwards, are handled through Companies House — start at gov.uk, which sets out how to register and what you must file. For the tax consequences of moving from sole trader to company, take advice from an accountant, because the right answer depends on your figures. Decide on the full picture, not on a single application.

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Credicorp Limited — UK lender to limited companies (Company No. 16093826). credicorp.co.uk