How to get an EIN as a small business owner

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Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.

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Question
Dear Your Business Credit,
I am a U.S.
citizen and a newbie to online business, in a startup. I want to know how to
acquire an EIN without my Social Security number to obtain business credit. As
my personal credit is in need of some repair, I have several charge-offs and
two defaults – one credit card for $300 plus interest and principal, as well as a
store card about the same in detail.

Do I need to
clear personal debt in order to get business credit? Can I become an S corporation or
a sole proprietorship if I am the only owner?

Should I spend money getting help from credit
counseling experts? – Charlotte


Answer
Dear Charlotte,
Obtaining
business credit without giving a Social Security number seems to be the holy
grail for many of our entrepreneurial readers, but I would not recommend that
you put any time into doing this.

There are
some cases in which a small-business owner with a substantial sized small
business may be able to obtain a loan based on the credit of the business.
However, generally speaking, owners have to personally guarantee small-business
loans and credit cards. At some point in the application process, that almost
always means giving your Social Security number.

Ways to get an employer identification number

It isn’t
possible to obtain an Employer Identification Number (EIN) without a Social Security number, unless you have an individual taxpayer identification number (ITIN) or an existing EIN. An ITIN is
a tax processing number issued by the IRS, regardless of someone’s immigration
status. It is often used by resident and nonresident aliens who have U.S.
filing or reporting requirements.

You can
become an S corporation or sole proprietorship if you are the only business owner, but having
run both a sole proprietorship and an S corp, I don’t think choosing one entity
over the other will affect your access to credit.

Alternative ways to fund your business 

If at all
possible, I’d suggest looking for the money you need another way, perhaps
through a part-time job or selling something you don’t need, and work on repairing
your personal credit for the next six months to a year.

For small-business owners, access to credit usually depends on their personal credit. Lenders
will generally make you personally guarantee bank loans and credit
cards – meaning you must pay them back even if the business closes.

You do have
a challenge in front of you because of the charge-offs and defaults, but I would
look at this as a fresh beginning. Work on your personal credit for the next
six months by paying more than the minimum balance due on any existing cards.

If you build up a great track record of repaying any existing debts on time,
your credit will improve. If you really need access to a credit card, try
getting a secured card, which will give you a new opportunity to show you can
manage a credit card well.

When it
comes to positioning yourself to borrow, it helps to put yourself in the shoes
of lenders. They want to be paid back and need to see evidence that you are a good lending risk.

In this situation, I wouldn’t spend the money on hiring a credit counselor since you can do much of the work yourself on repairing your credit. 

Once you are
able to build stronger credit, you’ll find that you suddenly have credit options that you never had before. That will help you do what
entrepreneurs do best: build your business.

Good luck!

See related: 7 things to know about business credit cards, Used wisely, small-business cards can keeps businesses afloat, Business credit card reviews




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