Can Sole Proprietors secure funding?

Among all business structures, sole proprietorship is the easiest ones to set up and operate but the flip side is, this entity type might face challenges when it comes to raising SME Funding in Singapore.

Setting up a Sole Proprietorship (Advantage)

Setting up a Sole Proprietor Business is really a breeze. If you’re a Singaporean or permanent resident, you can simply apply for registration online and the process should not take more than 30 minutes.

Secondly, it won’t cost you much, about $115 compared to private exempt companies which cost about $315 to register (as of 2019). Compliance and regulatory costs are also minimum as a sole proprietor does not have to adhere to certain regulatory requirements such as preparing yearly financial reports and appointing a corporate secretary.

Running the business is easy in the sense that you control it completely. Decision-making is fast because unlike businesses that might have to answer to other external shareholders, you are at full liberty to choose which options to consider.  There’s no red tape. Without business partners or external shareholders to account to, you don’t need approval from anyone. You are your own boss.

But of course, it can’t be all that rosy. There are downsides too that tip the balance. Let’s look at some of them.

Flip side of being Sole Proprietors

  1. Applying for SME Business Funding 

Luckily in Singapore, there are a couple of banks willing to take on Sole Proprietor cases. However, most financial institutions and alternative lenders such as Peer-to-Peer crowdfunding platforms might not be able to do so.

The reason why so is due to perceived lack of formal business structure and also certain restrictions on these financial institutions lending licenses. As a sole proprietor or partnership is legally treated as the same entity as the owner/s, by lending to the sole proprietor some financial institutions might be subject to the Moneylenders Act which regulates lending to individuals.

  1. More challenging for sole proprietor to take a Business Funding

As mentioned, although banks do offer SME loans to sole proprietors, they might find it slightly harder to qualify for a SME business loans due to different set of lending algorithm and credit scoring program.

However, if a sole proprietor has strong cash flow, well-prepared financial documents and achieved a certain level of personal income, it will be possible to achieve some funding. Let Caelin6 Consultancy help advise you on this aspect.

  1. Debt accountability

As an owner of a sole proprietorship, you are personally liable to all types of debts incurred by the business. If you find yourself saddled with obligations to creditors, vendors, and other persons or entities to whom you owe money, you alone are answerable to them.

  1. Limited opportunity for growth

Corporations wanting to lure investors may opt to sell shares of the company through a stock offering.  It is only logical for an investor to want a piece of the company’s equity in exchange for a sum of money he’ll invest in the business.

If you are a sole proprietor, this option isn’t available to you if you want to expand yet retain your business’ structure. Raising funds for expansion, for instance, can be difficult or close to impossible without the ability to issue shares and equity. 

For this reason, it can be quite difficult for a business owner like you to raise capital via equity especially when you deem its high time to expand.  Plans to scale up your business may forever be in the backseat because there aren’t enough people willing to invest in your  business.

  1. Tax matters

Although a sole proprietor can write off related business expenses in their income statement, he or she is taxed the net profit of the business at the personal individual tax rate.

Whereas for a private limited exempt company that is newly incorporated they would enjoy certain tax benefits. Newly incorporated companies can get tax exemption on the first $100k and 50% exemption on the next $200k for the first consecutive three years of assessment.

  1. Perceived lack of credibility

The general perception is that sole proprietorship lack credibility. Because you are in control of everything and you are accountable only to yourself, it is so easy to slip and commit mistakes that could put a dent on your credibility as a business owner. Because a sole proprietor is also essentially seen as just a one-man show, most banks might not be as keen to finance sole proprietors.

Sole proprietors are also technically not required to prepare full set of financial report. Therefore, some bootstrapped entrepreneurs will prefer to start operating their business under a sole proprietor as it saves compliance costs and resources.


Of course, running a sole proprietor business would still be able to secure funding with a certain success rate and has its own advantages for aspiring entrepreneurs to set up and run it immediately, without having too much distractions for regulatory and compliance issues accounting matters.

However when it comes to long-termed growth, Sole Proprietor Companies are found to be very restrictive. Thus a conversion to a Private Limited company should be considered instead.

Social Share:

Related blog

Why is engaging a SME Business Loan Consultants Important?
Why does Business Loans Applications keep getting rejected?