Entrepreneurs vs. Solo Entrepreneurs: What Are Your Financing Options?

Working Americans choose to start their own business for any number of reasons. There’s increased flexibility and independence, as well as more ambitious goals, like fulfilling a lifelong vision or dream.

According to the U.S. Small Business Administration, nearly 30 million Americans are small business owners as of 2017.

And although those millions of Americans are all independent small business owners, every startup is very different. The details of business ownership —from how you establish yourself legally before you even purchase a single piece of equipment or inventory, to the way you scale your business once you’re experiencing significant growth—vary widely from operation to operation.

As you might expect, then, the best advice for financing through business loans can vary, too—especially depending on how you categorize your company.

First: Are you an entrepreneur or a solopreneur?

You’l need to know how to categorize your company in the business landscape. Above all, understanding whether financial institutions and lenders see you as an entrepreneur or a solopreneur will change your options.

You’re an entrepreneur if…

You start and run a small business. Easy, right? Sort of!

In this sense, we’re talking about an “entrepreneur” as a business owner—and this person, sometimes joined by co founders, uses their startup as their sole source of income, assuming all of the risk and the reward. We’re not talking about a project or a side hustle—we’re talking about a quit-your-day-job, risk-it-all kind of operation.

In more official terms:

  • You’ve established yourself as business entity (like an S-corp or C-corp), so you file your taxes separately from your individual taxes
  • Running this small business is your full time job
  • You might hire employees, contractors, business consultants, or other team members

You’re a solopreneur if…

You also call yourself a “freelancer.”

If you’re working alone on any kind of project, whether on the side or even full-time, you’re a solopreneur. As their own boss, a solo entrepreneur also comes up with a business idea, builds their businesses from scratch, and takes on major risk and reward—but the key differences here are rooted in that they do it all themselves.

This is you if:

  • You file your personal and business taxes together
  • You don’t have employees, and won’t ever add any staff

Related: 7 Tips to Secure Financing for Your Small Business

Why business lenders see entrepreneurs vs. solopreneurs differently

Practically speaking, if you’re a small business owner with an established company, you’re going to have an easier time getting business financing.

Although as a solopreneur, you do technically have almost all of the same options available to you for funding, you’ll pretty much always present a higher picture of risk. Lenders are always working to mitigate risk to make sure they get back their money.

Why’s that? You must, by nature, have an entrepreneurial spirit in order to build up any kind of money-making operation, right? Of course. But when you’re a small business lender, the distinction between a freelancer and a small business owner—or what we’re calling an “entrepreneur” here—is crucial.

It’s the difference between being seen as someone who’s doubled down and invested equity into their business, versus someone who’s simply created an alternative avenue for income.

Among other things, lenders are worried about the predictability of your income and cash flow to repay a loan. Plus, your lack of liability protection is a tough sell for lenders, since your business assets aren’t protected from your personal ones if an unhappy client sues you.

Three great financing options for entrepreneurs

The best news for entrepreneurs is that you have several options when it comes to financing.

Here are three totally different routes you can take, depending on your growth stage, all of which will set you up for success:

1. Raise capital

The first route that many startups consider is raising capital. Depending on how much money you’re looking to raise—and whether or not you want to give up equity—you can look to friends and family to give you a boost, equity crowdfunding, or more formal angel investors in your space. Realistically, very few startups are able to raise venture funding—and it’s not the right option for everyone. Make sure you explore debt financing options, too.

2. Apply for a working capital loan

You’ll have several options with a working capital loan. If your business needs financing because it can’t currently generate more revenue, consider taking out any number of small business loans—a short-term loan or a business line of credit, for instance—that frees up some cash to help your business grow as quickly as you want it to. There are lots of different types of working capital loans from online lenders for businesses in different stages, and you can get approved very quickly.

3. Get a business credit card

Even if you are an entrepreneur, you might not have the time in business required to be approved for the business financing that you desire. If that’s the case, a business credit card could surprisingly be your startup’s best friend. If you pick strategically, you could get approved for a 0 percent intro APR card. It’ll give you a period during which you pay no interest on your balance—some cards even have up to 15 months—that you can use as a free-money loan.

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Three great financing options for solopreneurs

Regardless of whether or not you’re running your business on your own, we’d recommend forming a freelance LLC. It’s a little paperwork that’ll not only protect you in case of any business legal trouble, but also make you eligible to apply for better financing as you become a solopreneur.

1. Try invoice financing

As a freelancer, your income is dependent on your clients paying invoices. And there are few things as tough as your livelihood (aka cash flow) being tied up in someone’s Accounts Payable. Invoice financing is a fantastic option for working capital, since it allows you to work with a financing company to front you generally 85 percent of the invoice. You’ll get the remainder, minus the lender’s fees, when your client pays up. It’s a small price to pay for having the money you need to keep working.

2. Apply for an SBA microloan

One kind of top-tier business loan that was designed for the smallest of businesses: the SBA microloan. This best-in-class government loan provides certain businesses up to $50,000 in funding for working capital, inventory and more uses. There are strict application and usage guidelines, so do check those out prior to committing to this path.

3. Get a business credit card

Solopreneurs, too, can reap the benefits of business credit cards. Since you might not be as concerned with huge purchases, you’ll especially want to pay attention to the cash back rewards cards, which can not only give you purchasing power, but also put money back into your business bank account as a freelancer.

No matter your business, you have many financing options

Financing is a critical aspect for successful entrepreneurs and solopreneurs who are starting and running their own businesses. It is crucial for you to explore all available financing options, including traditional and alternative sources, to secure funding. By researching and choosing financing options that align with your specific business needs and goals, you can increase your chances of success.

Developing a solid business plan that outlines the company’s goals, growth strategies, and financial projections is also essential for solo entrepreneurs to attract investors and lenders. This plan can demonstrate the viability and potential profitability of the business, making it more attractive to potential investors, establish a strong business presence, and stand out among other business owners.

Building strong relationships with investors and lenders is equally important for your solopreneur business. Being your own boss, trust and transparency are key to developing and maintaining long-term partnerships. With these relationships, solo entrepreneurs gain valuable support and mentorship to help them succeed in the competitive world of entrepreneurship.

In summary, financing, a well-crafted business plan, and building strong relationships with investors and lenders are critical for achieving your business goals and succeed. By prioritizing these elements, the you will increase their chances of success and thrive in the world of entrepreneurship.

Whether you’re an entrepreneur, a solopreneur, or just taking notes for the future, the biggest takeaway here is that you have options when financing your own business. You can get your startup and business idea off the ground and growing—you just might need to rethink what financing looks like today.

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