Funding for new companies, small businesses, or entrepreneurial ideas is often tricky compared to established businesses. An excellent personal credit score can also help a new entrepreneur's chances of getting approved for a small business loan.
However, new startups with good business credit can apply for loans using a business credit account attached to an employer identification number (EIN), a federal business tax number. They may look for other credit options that don't involve a credit check. Like a Social Security number, an EIN is a unique number issued to businesses by the Internal Revenue Service (IRS) to track tax filings and payments.
An EIN is required for all types of businesses, except single members and sole proprietorship LLCs with no employees. Even if you don't need to apply for an EIN, having an EIN will increase your trustworthiness and help you build business credit. Applying for an EIN is a simple and free online process.
How to Apply For A Startup Loan With an EIN
When applying for a business loan using solely your EIN, follow a few key steps to improve your chances of approval.
Use Your Business to Your Advantage
Most small business lenders consider personal credit and financial status when evaluating loan applications. Business owners who prefer to apply using an EIN without considering their own can highlight their business's strengths, such as a good business credit score, history, or active funds.
Lenders also consider annual income, financial statements, business plans, and collateral in place of personal loans and credit scores. A personal guarantee that you will repay the loan if your business defaults can also strengthen your application and appeal to many lenders.
Build Credit
It's important for new startups that need more time to build business credit or demonstrate a history of financial success to start building credit early. New entrepreneurs can build credit by applying for a business credit card using an EIN, setting up sales lines with suppliers, and paying off their credit card debt in full monthly.
Consider Other Financing Alternatives
Another option for those who need more time to build credit is to apply for a business loan that doesn't require a credit check. However, the costs of borrowing in these situations are high, and many of these options come with additional requirements that new investors may need help to meet.
New business, friends, and family loans can also be a way to get financing for your business without needing a strong business credit history or taking out loans.
5 Startup Loans With an EIN Only
For businesses who are looking to finance their new endeavor, consider using one of these funding options using just your EIN.
1. Business Credit Card
We love business credit. Almost all business credit cards can help you do so many things to help your business. Business credit cards can also be used after the first loan is paid off. Like an entrepreneur with a good personal credit score, a good credit score for your business can help you get financing from most business lenders. And this can help even if your FICO score isn't very high.
2. SBA Loans
The Small Business Administration prefers to provide loans to established businesses. However, new startups requiring funding to compete with already-established companies are growing daily. For new companies, and those with 1+ years of business history, showing a favorable business trajectory invoices, debt repayments, and future plans can help increase the likelihood of approval.
If your business has a good small business credit score, you're golden. The SBA also offers great financing options for small businesses in specific niche areas that are hard to break into, encouraging growth and market diversity.
The most popular SBA loan option is the SBA 7a loan. This small business loan is best for real estate but can also be used to pay off debt or buy equipment. Remember that you must provide several documents to qualify for an SBA loan, such as a business plan, credit history, and financial information. Although ample paperwork is required to apply for an SBA loan, it is a favorable choice for new business owners to obtain capital for various purposes.
3. Merchant Cash Advance
An MCA can be a great financing option for small business owners with bad credit. If your small business has a lot of credit card transactions, you may qualify even if you have a bad credit history. However, the interest rate can be very high, the loan period is short (some only last for a few weeks), and frequent withdrawals from the business account are required.
It could be a promising short-term solution if you believe your small business can pay off the MCA early. This way, you can offer customers better payment methods and eliminate short-term debts. But, a more extended repayment plan can lead to a hefty interest rate and exorbitant fees.
The key indicator is the size of the credit card sales volume. This is why a bad credit record is not a past liability. In most cases, your FICO score doesn't matter when an MCA lender decides to give you a loan.
4. PayPal Business Loans
Did you know that PayPal offers business loans? Loans are available for $5,000 to $100,000 for primary borrowers and up to $150,000 for senior borrowers. You don't have to check your eligibility, so this credit check for startup business loans will not affect your consumer credit score. You must have a business account with PayPal and have been in business for nine months or more. In addition, you must have an annual income of over $33,300.
Therefore, it is considered a startup fund; even if you try to get this type of fund at least a year before opening, you need to receive the cash flow quickly to fund your business as it grows. This fixed-term business loan option withdraws payments every week through your PayPal account. You can choose terms from 17 to 52 weeks, with the approval rate depending on your history and credit score.
5. Credit card
Lastly, a credit card is similar to a merchant cash advance. However, instead of using debts through unpaid credit cards, this type of loan uses debt as collateral.
Like an MCA, you can use this budget to spend more time paying your customers and prospects. This is because you "sell" the loan to the trading company, giving them a large part of the face value you can use to pay business expenses.
Pros and Cons of EIN Loans
There are a few benefits and drawbacks of applying for, and receiving, business loans with EIN only. Although startup money is better than no financing, some of these funding options come with potential downsides that can outweigh the perks.
Pros
- No credit check: For business owners with fair, average, or bad credit scores, applying for and receiving a loan can seem impossible. Plus, your credit score can be reduced even further when you apply for a loan. With an EIN-only loan, you can apply for funding without needing a credit check.
- Easy funding: An EIN business loan is typically easier to qualify for than other loan options with stricter regulations. Other traditional choices may require a good or excellent credit score, favorable business history, minimum business length, and collateral. However, EIN loans only require alternative documents, like outstanding invoices, to prove the trustworthiness and necessity of the loan.
- Easy application: Lastly, for individuals who need fast and easy access to c capital, the application process for EIN-only loans is simpler and quicker than other choices.
Cons
- Expensive: Although small businesses try to cut costs and reduce debt in any way possible, obtaining a necessary loan can sometimes put them further into debt than anticipated. An EIN-only loan is often more expensive than traditional loans with lower fees and interest rates.
- Difficult to find and choose the right one: EIN-only loans are less frequent than other funding choices. Not only are they harder to find, but they are less advertised and more elusive regarding applications. However, once you find the right EIN-only loan, the application process is much quicker than other business loans.
- High risk: The last drawback of using an EIN-only loan is that it can put your new business at risk. Since the loan has higher fees, higher APRs, and hidden fees, it can put your new business at risk due to the ‘catches’ that could be included in the loan process.
Apply for Business Loans With EIN Only Using Our Professionals
Applying for a business loan can be a long and drawn-out process — but it doesn’t have to be. If you want to apply for a loan to help get your business up and running, but you only have an EIN, it can seem impossible. However, using a reputable financial company can help you find a loan, gather the necessary paperwork, and expedite the application process.
With Business Loans, we are in the market to help you find a unique funding opportunity that seamlessly integrates with your company’s needs. We offer hands-on, customized, and personalized help that takes the guesswork out of finding a funding option for your new entrepreneurial idea.
