Most lenders will use your personal credit score to decide whether to approve a small business loan—especially if you’re a relatively new business. That can make things more difficult if you have a troubled credit history and a low credit score. If your personal credit score is under around 650-700, you will likely have problems getting a loan from a traditional bank or the Small Business Administration.
In these cases, you may want a lender that will provide borrowing on your business credit only. As a “separate entity,” your business can have its own credit score, and you can use that score when trying to access financing. We’ll briefly cover getting an EIN and a business credit score, then discuss which loan options could be available to you.
What Is an EIN?
An Employer Identification Number (EIN) is a unique identification number that the IRS uses to track your business filings and taxes. The EIN may also be used by other federal and state agencies to identify your business.
Several types of businesses are legally required to have an EIN. We recommend getting an EIN regardless of if you have to have one or not. Getting an EIN is a necessary step before building up business credit. It is free to obtain an EIN and you can easily request one from the IRS.
How Is My Business Credit Score Tracked?
Just like credit agencies track your personal credit score, specialized business credit agencies monitor and track your business score. The most popular business credit scoring agency is Dun & Bradstreet. Once you have established your business and obtained an EIN, you can register with Dun & Bradstreet to start building up your credit.
How Do I Increase My Business Credit Score?
We have a guide to the differences between personal and business credit scores and you’ll find the factors that go into deciding your business credit score. Briefly, though, you can boost the credit score associated with your EIN as follows:
- Take on loans and always repay on time, avoiding late payments or defaults.
- Keep your credit utilization low, so you don’t use up all the money you have access to.
- Build up history with your business loan accounts.
- Have a reasonable number of credit accounts.
- Avoid derogatory marks.
- Have strong business financials supported by robust financial reports.
- Operate in an industry or sector that is not considered especially risky.
- Show good business management and administration.
Essentially, you want to take on reasonable amounts of business credit at a reasonable pace, repay on time, not use up too much of your credit facilities, and build up an excellent track record. This will all help boost your business credit score.
Can I Get a Loan with Just My Business EIN?
Yes, there are certain circumstances where a lender will not use your personal credit score, but only your EIN as a factor in lending to you. Note that they won’t just use your EIN in isolation, as there are many factors that go into qualifying for a small business loan. Here’s when a lender may just use your business credit score, instead of your personal one:
- If you are a business with a long and established credit history, with strong financial management, cashflows, profits, and balance sheets.
- If you are not offering up personal collateral or guarantees for the loan, which means your business is completely responsible for any debt—not you personally.
- If they are an alternative lender that does not check personal credit scores.
For most small businesses, your reason to apply using just an EIN is likely a combination of two and three from the list above. For that reason, we’ll use the rest of this article to answer these questions.
Will My Access to Small Business Loans be Limited?
Yes. Most lenders will require a personal credit check, collateral and guarantees. Without providing these, you won’t have access to as broad a range of financing.
Will I Pay Higher Interest Rates and Fees for an EIN-Only Loan?
In general, yes. Due to the increased risk of lending to you, lenders may charge significantly higher interest rates, resulting in more of your cash flow going to loan repayments. You should carry out a detailed analysis of your cash flow to be sure you can meet repayments with high levels of interest. In many cases, there may also be additional fees to setup and maintain the loan facility.
What Are the Main EIN-Only Small Business Loan Options?
You have several options for EIN-only loans:
- Invoice Factoring
- Accounts Receivable Financing
- Merchant Cash Advances
- Other types of loans
When you use invoice factoring, a specialized factoring company buys and owns your outstanding invoices and deposits a lump sum with you. They deduct a fee from each invoice that you sell to them. The lender takes on ownership of the invoices.
Accounts Receivable Financing
A/R financing is similar to invoice factoring, except you retain ownership of the invoices. You offer up your invoices as collateral and are sent advances on your money. You repay this money as invoices are paid, less the lender’s interest and fees.
Merchant Cash Advances
Merchant Cash Advances (MCAs) work through a lender providing you a cash advance as a lump sum. You then repay that advance by giving them a portion of your future sales, typically through taking repayments out of your credit and debit card payments. Some lenders may also require daily or weekly payments. The interest rates on MCAs are likely to be particularly high.
Other Types of Loans
It’s possible that you may qualify for other types of small business loans using just your EIN. The easiest way to find out is to use our specialized tool, enter your business details, and match yourself with an EIN-only lender.
Recommendations for EIN-Only Loans
Here are our recommendations for getting the most out of EIN-only loans:
- Apply for an EIN as soon as possible and register with the business credit agencies—this helps you start building business credit straight away.
- The earlier you start building a business credit history, the better.
- Have an established business history with financial reports and paperwork that supports your claims—as this provides compelling supporting evidence to lend to you.
- Implement excellent financial management in your business—this helps you understand how much you can repay and ensures you can meet your commitments.
- Shop around to find the best deal—the repayment terms, fees, interest rates, and qualifying criteria will vary widely from lender to lender. You should shop around to find the best deal.
- Be prepared for higher interest rates and setup fees—these types of loans will be more expensive than traditional loans, so be prepared for the costs and put aside enough money.