Should that business be representational of a sole trader and it experiences losses or incurs debt, then the individual needs to decide how to raise further capital to allow the company to keep trading. There are many options available, but of course each individual needs to consider them against their personal circumstances.

The most obvious solution is to apply for a temporary increase in overdraft from the bank. A bank is more likely to want to offer the service if it can be proven that the problem is a temporary one. If it cannot be shown how the money will be repaid, the bank is much less likely to consider lending. Given the right information, banks can usually make a quick decision on whether to extend the overdraft or not; however, with the higher levels of interest involved it can often be more costly than other options, such as taking out unsecured loans.

Factoring involves the sale of the debtor book to a factoring company. They then provide the business with capital advances against that investment. Using this form of borrowing, you can expect to receive between 50% and 95% against the debtor book. The charges for this service are from around 0.3% to 0.5%, dependant on the amount of work required, the quality of the debtor book and the number of invoices involved. However, this form of borrowing can be restricted to limited companies.

Asset Refinancing is the use of unencumbered assets to borrow against. Unencumbered assets are items such as property, machinery and stock. The better the assets involved, such as land or property, the better the rate of repayment will be for the borrower. This can be a quick method for raising capital but the borrower needs to consider the length of the borrowing term; if the period of debt is longer than anticipated, there will still be repayments to be made.

Personal loans are another option and, perhaps, the most viable for the sole trader. They can come in two forms: secured or unsecured loans.

Secured loans are quicker and easier to obtain, even for those with lower credit scores. This is because there is security involved for the lender; usually in the form of a house or property. While this does make obtaining the capital easier, there is always the potential for repossession should the borrower be unable to meet the repayments.

Unsecured loans do not require the presence of collateral to offset the risk to the lender. As such, they can be slightly harder to obtain, being only offered to those with better credit ratings and can incur slightly higher rates of interest. However, as many financial institutions are recognising the demand for this type of borrowing, the market for unsecured loans is becoming extremely competitive. ASDA Finance, for example, has taken the step of making their interest rates for unsecured loans lower than for their secured loans packages.

The table below shows a summary of typical rates for some lenders (all rates accurate at time of writing):

For current rates, take a look at fool.co.uk loans.