Why is it more difficult for sole traders or partnerships to borrow money?

Answer 1

Sole traders and partnerships often face greater difficulty in borrowing money due to their limited financial history and lack of collateral compared to larger corporations. Lenders perceive them as higher-risk borrowers, as their income is often tied to the individual’s personal finances, making them more vulnerable to economic fluctuations. Additionally, these business structures typically lack the formalized financial reporting and credit ratings that banks prefer when assessing loan applications. Consequently, they may face higher interest rates or stricter borrowing terms.