Borrowing as a sole trader: which consumer-credit rules apply

A sole trader has no legal identity apart from the person running the business, so a loan taken out for the business is, in law, a loan taken out by an individual. Where that borrowing is £25,000 or less, it sits inside the consumer-credit regime built to protect individuals.

What brings the rules into play

The boundary is set by the Regulated Activities Order, the rule that decides which credit agreements count as regulated, and the test it applies is the amount being borrowed. A sole trader asking for £15,000 to replace a van is treated, for this purpose, much like someone borrowing £15,000 for anything else. Above £25,000, the same sole trader's borrowing moves outside that regime, even though nothing about the business has changed.

What the lender then has to do

A lender offering a regulated agreement has to check the borrowing is affordable before it lends, set out the terms in the pre-contract information a consumer would receive, and give the borrower a short period to withdraw after signing. None of that depends on the lender's own policy.

What it leaves you with

Inside the threshold, a sole trader keeps a route to the Financial Ombudsman Service if a dispute with the lender can't be settled directly. That route, and the obligations behind it, depend on the amount and the legal form doing the borrowing together. Where a loan sits either side of that figure, or runs through a limited company instead, the position changes, and that's covered in full on the page about what changes with your legal form.

Move the same lending above £25,000, or route it through a limited company, and the consumer-credit protections built into the Regulated Activities Order step away. The lending itself hasn't changed. What changes is which rules the lender has to follow when it deals with you.

What drops away

Where consumer-credit rules apply, a lender has to give you set pre-contract information, check whether you can afford the repayments before it lends, and allow you a cooling-off period to withdraw. Once the borrowing sits outside those rules, none of that is required by law. A lender may still do some of it as a matter of its own practice, but you can't rely on it, and you have no statutory breach to point to if it doesn't.

What stays with you

The Financial Ombudsman Service's jurisdiction for complaints from smaller businesses doesn't follow the consumer-credit line in the same way. A micro-enterprise, a small business, or a guarantor can still bring a complaint about how a lender has behaved, whether or not the lending itself was regulated credit. That route is covered in full on Taking a Complaint to the Financial Ombudsman as a Small Business, and it's worth reading before you sign anything, not after.

What changes with your legal form more broadly, including why a limited company sits outside consumer-credit rules at any amount, is set out on What Changes with Your Legal Form. Where a personal guarantee is part of the deal, the guarantee carries its own route to the Ombudsman regardless of how the underlying loan is treated, which is worked through clause by clause on The Personal Guarantee, Clause by Clause.

Borrowing for the business often starts with someone pointing you towards a lender. An accountant, a supplier, a broker, even another business owner who used the same bank. That introduction is not always a casual favour: putting a borrower in touch with a lender for a credit agreement that consumer-credit rules cover is itself a regulated activity, known as credit broking, under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Making the introduction requires its own FCA authorisation, separate from whatever authorisation the lender itself holds.

What to check before you take the introduction

Ask the person making the introduction whether they hold FCA authorisation for credit broking, or whether they act as an appointed representative of someone who does. You can check the FCA's register yourself. An unauthorised introduction doesn't automatically mean the loan on offer is unsound, but it does mean the arrangement that brought you to it sits outside the oversight the rules intend, and that's worth knowing before you sign anything.

The consumer-credit protections that apply to your borrowing depend on your business's legal form and the size of the loan, which this page covers in the sections either side of this one. Those protections travel with the agreement itself. Who introduced you to the lender is a separate question, and one worth asking regardless of how the loan itself is structured.