An EIN Business Loan from a Direct Lender offers business owners the opportunity to get immediate funding.
Last Updated on January 20, 2025
Shield Funding TeamWhen starting a business, understanding the role and importance of an Employer Identification Number (EIN) is crucial. This unique identifier is not only important for tax purposes, but it also plays a significant role in securing business loans, which are often a necessity for startups as they develop their company. Shield Funding has been working with business owners for almost two decades and wants you to have a firm understanding about the basics of an EIN number and the role it may play in the business loan process.
Per the Internal Revenue Service (“IRS”), “An EIN is a 9-digit number (for example, 12-3456789) assigned to employers, sole proprietors, corporations, partnerships, estates, trusts, certain individuals, and other entities for tax filing and reporting purposes.” The number identifies your business with the IRS and other financial institutions.
If you have employees, the IRS and state and local taxing authorities require that your small business have an EIN. If you run a sole proprietorship, for example—an EIN isn’t necessary to pay taxes. Even if you don’t technically need one, consider applying for an EIN to build business credit or if you plan on hiring employees in the future.
The Employer Identification Number (EIN) is essentially the business equivalent of an individual’s Social Security Number. It is a unique nine-digit number assigned by the IRS to businesses for identification purposes. The primary purpose of an EIN is to identify a business entity for tax reporting and is required for businesses that have employees, operate as a corporation or partnership, or need to file employment, excise, or ATF tax returns.
It is not just for tax reporting purposes. It is used to open business bank accounts and apply for business licenses and permits. Additionally, many business owners begin to start building business credit the moment they establish an EIN. The longer you have an established EIN, the easier it is to establish business credit cards and apply for credit lines and business loans. Basically, unless your business is dormant and not used for any transactions whatsoever you need an EIN. Understanding the definition and purpose of EIN is fundamental for business owners to ensure compliance with tax laws and to facilitate various business operations.
The EIN is a prerequisite when applying for business loans. The EIN is often included in loan documentation, contracts, and agreements to clearly identify the borrowing entity. Also, for certain types of business loans, especially those backed by government agencies, there might be specific legal requirements or regulations that mandate the collection of the EIN. Most importantly, lenders use the EIN to assess the creditworthiness of the business, and it serves as a reference for the business’s financial transactions and credit history. The EIN is a critical piece of information for lenders as it helps them assess risk and accurately identify the borrowing business.
The EIN has a significant impact on a business’s credit score. A business credit score is a numerical representation of a business’s creditworthiness, and it is calculated based on the information in the business credit report. The EIN is used by credit bureaus to record the credit activities of a business, which in turn affects the business credit score. A good business credit score, attached to the EIN, can open up opportunities for better loan terms and interest rates. It can also influence the amount of credit that suppliers are willing to grant the business.
Maintaining a positive credit history using the EIN is crucial as it can impact the business’s ability to secure financing and can affect the terms of credit extended to the business. Business owners should monitor their business credit reports regularly to ensure accuracy and to address any discrepancies promptly. Some popular business credit reports are the Paydex score or Intelliscore from Experian. A well-maintained business credit score, associated with the EIN, can significantly enhance the financial stability and credibility of the business.
Business credit and personal credit serve different purposes and have distinct characteristics, but both will most likely play a role when applying for business loans. The most obvious reason is that business credit scores are only established when the business is established, personal credit scores are throughout the individual’s entire life, especially the most recent years of financial transactions and payment history. Business credit can also play a role in securing business loans because the recent business credit transactions may demonstrate excellent payments with current vendors.
The point is, given the intertwined nature of personal and business finances, especially in smaller businesses, using both the SSN and EIN allows lenders to make more informed and balanced lending decisions. It is worth mentioning that every lender has their own risk assessment procedures and may use one or both depending on their internal decision-making process.
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Securing a business loan by only using your EIN number is extremely unlikely. Although the EIN provides valuable information about the financial health and history of a business, the SSN offers insights into the financial behavior and reliability of the individual behind the business. Additionally, many businesses just do not have established credit history, especially young businesses. Some other reasons worth mentioning are the common requirement of personal guarantees as well as fraud prevention. For all these reasons and others not mentioned, receiving a business loan with only using an EIN number is unrealistic.
If you’ve already obtained an EIN and need to access capital, here are the best business loan options for businesses that are open and generating revenue.
If it’s time to invest in an opportunity immediately, or if you have any type of emergency expenses, Shield Funding offers a fast business loan process. Designed for immediate funding in the same day, you can receive up to $500,000 today. Repayment periods range from 6 months up to three years. In addition to your EIN, you must have a personal credit score above 530, minimum monthly revenues of $10,000, and at least 6 months of operations and cash flow.
If you have 10K volume of monthly sales and have an EIN with at least 4 months in business, a merchant cash advance can be a great option. Whether the sales come via credit card or debit card sales, or any other way, as long as you have cash flow you can get this business loan option. If your small business has minimum monthly revenues of $10,000 and a credit score as low as 500 you can apply.
Similar to a MCA, with invoice factoring or accounts receivable financing lenders fund the loan based on your sales. However, they’re funding the loan based on past sales.
With invoice factoring, the lender looks at your past due invoices. They determine the creditworthiness of your customers and then offer to buy your invoices for a lump sum. This lump sum will be a discount from the invoice’s total amounts.
With accounts receivable financing you still own past due invoices, the lender just advances you capital based on their total amount. You remain responsible for collecting on the invoices, and still have the opportunity to recoup their full amount.
Because both of these financing options rely more on your customer’s credit profiles, it’s possible to receive an advance with just an EIN.
Working capital loans help pay for day-to-day operations like payroll, rent and utilities. They’re not meant to fund large expansions, though lenders don’t place any restrictions on how you spend the funds. This type of loan can feature rates better than MCAs or other types of high risk financing, but they may require a few days of processing and some additional paperwork.
Underwriters look at bank deposit consistency and overall monthly revenues when approving a working capital loan, making it a faster loan application process than a bank loan. If you’re experiencing a temporary cash flow crunch, additional working capital can help. Business owners with credit scores above 650, and an EIN, and 6 months in business can qualify for a working capital loan. If you’re a small business owner in need of working capital, having an EIN will make it easier to qualify for financing.
There are limited opportunities to obtain a startup business loan using an EIN number only. Most banks and online lenders require time in business and current revenue and cash flow. However, there are several types of business loans and financing options specifically designed for startups:
These can be a good option for startups looking for flexible short-term financing. They also offer the added benefit of rewards or cash back in many cases. The longer you have an EIN number the easier it is to get a larger amount for your first approvals.
These are smaller loans, often provided by non-profit organizations or specialized lenders. They are designed for startups and small businesses that need a modest amount of capital. A great resource to get started here is though an SBA intermediary.
While not a loan in the traditional sense, angel investors provide capital to startups in exchange for ownership equity or convertible debt. At some point you will need an EIN for this type of funding but you may be able to apply with an idea only.
Venture capitalists are professional groups that manage pooled funds from many investors to invest in startups and small businesses. In exchange, they usually receive equity in the company. You can still be at an early stage without an EIN number and actually get funding.
Platforms like Kickstarter and Indiegogo allow startups to raise small amounts of money from a large number of people. This can be in exchange for product discounts, equity, or other rewards. Again, once you start transacting with a business you require an EIN.
Each of these financing options has its own set of advantages, requirements, and considerations. Startups should carefully evaluate their needs, the cost of capital, and the terms associated with each option before making a decision.
Personal loans can serve as a viable business funding option, especially for new businesses or sole proprietors without a well-established business credit history. These loans, based on the individual’s credit history, can be more accessible and flexible than traditional business loans. The approval process is often faster than banks, and there’s no need for business-related documentation, such as an EIN or financial statements. However, there are drawbacks. Personal loans might offer lower funding amounts compared to business loans, which could be insufficient for larger business needs. Additionally, using personal loans means the individual is personally liable for the debt. If the business faces financial challenges, it could impact the individual’s personal finances and credit score.
Personal credit cards can also be used to fund business ventures. They offer the advantage of quick access to funds, especially for individuals with good credit histories. Unlike business credit cards, there is no need for an EIN number. The main drawbacks with this type of funding is that the credit limit is often very low and it is not as easy to use as cash for a variety of expenses.
Navigating the world of business loans with just an EIN can be difficult, although some possibilities to get business funding only using an EIN do exist, there are very few options compared to your options if you have one. At some point any business owner that plans on growing a business should apply for an EIN. Almost all lenders require an EIN to provide any type of credit or capital. There are a wide variety of options whether you are just starting out or have an established business. The information above should answer most of your questions and guide you to the right EIN business loan option for you.
An EIN is a nine-digit number issued by the IRS to identify your business for tax purposes. Lenders use it to verify your business, assess its financials, and establish a credit profile separate from your personal credit.
You can apply without an EIN if you’re a sole proprietor using your Social Security Number. However, having an EIN improves your chances by showing lenders your business is established.
An EIN helps separate your business credit from personal credit, shows professionalism, and increases eligibility for larger loans. It’s also required for certain loan types, like SBA loans.
Yes, some lenders focus on your business revenue and financials rather than credit scores. Alternative options like merchant cash advances or lines of credit may also be available.
With an EIN, you can apply for SBA loans, term loans, lines of credit, merchant cash advances, and equipment financing. These options suit different business needs, from working capital to equipment purchases.
To apply, gather financial documents, check lender requirements, complete the application using your EIN, and submit it with supporting documents. The lender will review your details to determine approval.
