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Compared with well-established businesses, startup businesses often have a difficult time securing loans. A poor personal credit score on top of that can hurt a startup owner's chances of being approved for funding.
But startups with good or excellent business credit may be able to apply for loans using the business credit score attached to their employer identification number, or EIN, a business tax ID number issued by the government. They may also look for alternative lending options that don’t involve a credit check.
How to apply for a startup loan with an EIN
Business owners who want their personal credit scores left out of the equation can emphasize strong points about their business in their loan application, such as a good business credit score or long financial history. Lenders may also consider annual revenue, financial statements, business plans and collateral.
There’s just one problem for startups — lots of them haven’t been established long enough to build their business credit or demonstrate a history of financial success. That’s why it’s important to start building business credit as soon as possible.
Thankfully, a business’s doors don’t have to be open to start doing that. A startup business owner can build their business’s credit by applying for a business credit card with their EIN, establishing trade lines with vendors and paying their credit card bills off in full each month.
For those who don’t have time to build their business credit, another option is applying for business loans that don’t require a credit check. However, the cost of borrowing in these situations is often high, and many of these options might come with other requirements that startup owners may not be able to meet.
How Much Do You Need?
Startup loans that don’t always require a personal credit check
Applications for most startup business loans and startup business lines of credit consider business owners’ personal credit in some capacity. But there are a handful of funding options that may not — or that will settle for a lower level of business credit history from their borrowers. Here are a few of them.
Online business loans
While online business loans sometimes have lower minimum credit requirements, they don’t typically skip credit checks altogether. Even so, they may be more flexible than banks or the U.S. Small Business Administration if you have at least some business credit history. Most online lenders list minimum credit requirements, so business owners will have to reach out directly to the lender to determine how lenient it can be.
Invoice financing lets a business owner borrow against their unpaid invoices and depends on the creditworthiness of the business’s customers instead of the business owner. This type of borrowing generally doesn’t hurt the borrower’s personal or business credit score. It can help address short-term cash flow issues by putting money in a business’s pockets before customer invoices are due.
Merchant cash advances
Merchant cash advances give businesses a lump sum of cash that they repay with credit card sales over time. However, they usually come with much higher interest rates than traditional lending options and don’t build your business credit. Unlike loans, merchant cash advances determine a business’s eligibility based on credit card receipts as opposed to a credit score. But because of its high rates, this type of funding should be a business’s last resort.