When a lender decides to approve or disprove your business loan application, your personal credit score is almost always the determining factor. This becomes especially true if your business is new. If your personal credit score isn’t quite up to par, (think less than 700), you’re likely to encounter some issues when applying for a loan from traditional lenders.
If this describes you, then using your business credit score to apply for a small business loan may be a good option. However, it helps to understand the ins and outs of how to do this. The process begins with acquiring an Employer Identification Number (EIN). A business with an EIN can become its own entity and have its own credit score, one that is separate from your personal score.
What is an EIN?
Once any US business is established, the IRS assigns a unique nine-digit number to that business, known as the Employer Identification Number, or EIN. It’s used by the IRS to track the tax filings of individual businesses.
Many business types require having an EIN, but even if yours does not, we recommend filing for one. As we mentioned, it’s the crucial first step to establishing business credit. The process is completely free, and you can begin here.
How do I Raise my Business Credit Score?
A business credit score (just as with personal credit) is directly tied to the financial history of the business. Factors that go into business credit score include but are not limited to:
- Repayment History (Paying loans, leases, credit cards and other bills on time is number one in the eyes of lenders.)
- Amount of Available Credit Used (Lenders prefer when businesses don’t use a large percentage of their available credit.)
- Account Variety & Length Open (Having multiple accounts open for longer lengths of time is reassuring to lenders.)
- Legal Filings & Derogatory Marks (Lawsuits, judgments, liens, financial delinquency, and especially bankruptcy are all viewed as red flags to lenders.)
- Other Business Facts (Most lenders also consider what type of industry the business is in, the size of the business, as well as factors like location and how long the business has been running.)
In order to raise your business credit score, play by these rules! Take on loans and always repay them on time. Don’t use large percentages of the credit you have. Establish credit history over time. Avoid lawsuits and other derogatory marks. Operate in a non-risky industry. Show good management and organization. Have all your business licenses up-to-date and in order.
How do I Apply for a Loan with my EIN?
So, let’s say you have a decent business credit score, but your personal credit score is lacking. The solution is to apply for a small business loan using only your EIN. Yes, indeed, there are ways to do this. Please note that it will not be just your EIN taken into consideration. Your business plan, financial history, legal documents, revenue projections, and tax returns will also be factored in.
That being said, there are three main reasons why a lender would use your EIN/business credit score and not your personal score:
- Your business is well-established with a strong credit history, positive cashflow, and/or large profit margins.
- Your business is entirely responsible for the loan, meaning you have no personal collateral or guarantees.
- You apply for a loan with an alternative lender that does not use personal credit scores.
Most small business owners looking to use their EINs instead of their personal scores for a loan will have reason 2 or 3 to do so. Your access to loans will obviously be limited by using just your EIN, and you may encounter higher interest rates and more fees. This is because the risk is greater for the lender. BE SURE you can repay the loan you take out with this information in mind.
What are my Options?
First and foremost, your best option is to contact us right now and discuss what options ABC has for you. With 20 years industry experience and over $100,000,000 funded, we can help you get the best possible business loan with just using your EIN. Click above or call 1-800-549-2744 to get started.
The three most common types of loans for businesses using their EIN are:
- Invoice Factoring
- Accounts Receivable Financing
- Merchant Cash Advances
Invoice Factoring is a financial transaction between a businessowner and a lender in which the business sells its invoices for discounted sum. This process allows a business to receive a lump of capital up front as opposed to waiting for all its invoices to clear. Typically, the discount is around 5% of the total. This covers fees that the lender may encounter, as well as protects against any losses.
Accounts Receivable Financing is basically the same as invoice factoring, except instead of the business selling its invoices, the lender uses the invoices as collateral. The business will receive a loan and then pay it back with money received from the invoices over time. If managed well, this is a lucrative option because the business received a lump sum and also maintains control over its invoices.
Merchant Cash Advances are loans given to a business that are repaid with percentages of daily business sales. Some small businesses don’t use an invoicing system and prefer to use cash, checks and credit cards only. For such businesses, an MCA may be a great option. Your business receives a lump sum up front and pays it back using a fixed percentage of daily profits.
The Last Word
If you don’t already have an EIN, apply for one. Then register your business with all the major business credit agencies. This will immediately begin establishing business credit. Keep all your legal and financial documents in order. Be prepared for the possibility of higher rates and fees than you’d see with traditional lenders. Manage your money as best as you can, and the last step is to give us a call.
ABC is not a traditional lender. We will work with absolutely anybody to find them the best loan options on the market. We’ve been doing it for over two decades, and we want to do it for you.
