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If you want to avoid a personal guarantee in your business financing, you need to build business credit with your EIN, and not your Social Security number. Follow these steps to achieve this!
These steps assume that you already have a business entity setup, like an LLC or an S-Corporation, with an EIN tied to it.
Step 1: Open Up a Business Bank Account
Every business needs its own bank account.
Why? Having your own bank account protects you. It ensures that you’re keeping your business funds separate from your personal funds. It also legitimizes your business and helps you keep better track of your income.
But it also plays a role in establishing business credit. More importantly, some lenders will immediately reject your financing application if you don’t have a business bank account.
Lenders want to make sure that you’re financially stable. Otherwise, they’re putting themselves at great risk by allowing you to take on debt. A business bank account covers you by showing that you have enough consistent income to be a reliable borrower.
Opening up a business bank account is a bit more involved than a personal account, but still quite simple.
Step 2: Apply for a DUNS Number
There are more than a few business credit bureaus out there. But one of the top three is Dun & Bradstreet.
D&B offers business owners what’s known as a DUNS number. With this number, others can look you up with your 9-digit number to learn more about your credit and financial status.
For lenders who are accepting those with just an EIN, this gives them more insight into your business. It helps them better determine whether or not they want to take you on for credit products. As you build your credit, it will play a crucial role in applying for further solutions.
Unlike Experian or Equifax, you have to apply for a DUNS number to get a credit score. The good news? The process is free and easy. Take care of this as soon as possible as it can take up to 30 days to receive your DUNS number.
Step 3: Open Business Tradelines
Once you’ve taken care of all the prerequisites, it’s time to begin opening up business tradelines.
The term “business tradelines” can be confusing to some new business owners. Put simply, a business tradeline is anything where credit is extended to your business by a vendor or lender.
There are multiple types of business tradelines to choose from. This can include business loans, business credit cards, net 30 accounts, lines of credit, and beyond. However, there are also multiple considerations to make when looking to open a new business tradeline for the purposes of building your business credit.
Here are the most crucial:
- Your chosen tradeline should report to all the major business credit bureaus.
- It shouldn’t require a personal guarantee.
- Make sure that they accept businesses without established business credit.
- It shouldn’t report any activity to the personal credit bureaus. Whether positive or negative, you want to avoid your personal score being affected.
If you’re just starting out, shoot for 10 business tradelines. Your business credit scores will be pretty good if you have 10 business tradelines with on-time payments and no deliquencies.
Don’t know where to start? Check our list of Digital Honey approved business tradelines.
What Are the Benefits of Getting Business Credit With Just an EIN?
There are several benefits to using your business EIN instead of your personal SSN to build business credit.
- You eliminate the risk your activity poses to your personal credit. Personal credit comes with a vast range of rules, like low credit utilization. With business credit, your focus is tapping into as much funding as you can acquire. Should you use too much credit or otherwise make a mistake, your personal credit can take a massive hit. Relying on vendors or lenders that only report to business credit bureaus keeps you safe.
- You start off with a clean slate. Building credit takes time. But if you have low personal credit, finding the right lender can already be a difficult process. Using just business credit may be a better alternative for those who have low personal credit scores.
- It makes it much simpler to keep business and personal finances separate. Rather than using your personal finances, you start off solely with business credit.
Is a Social Security Number Important for Getting Business Credit?
A Social Security number can be important for business credit in some cases (and it’s always an option).
Firstly, it opens you up to more opportunities. Given that the majority of lenders ask for an SSN, you have more opportunities.
If you have good personal credit, you can also leverage that to jumpstart your business credit. You’ll be able to access more funding and get more favorable terms from the start.
Additionally, most lenders check your SSN to comply with Know Your Customer (KYC) laws. This means that they’ll use it to verify your identity. But they won’t necessarily check your personal credit.
So every time you complete an application, make sure you know if they’re about to check your personal credit! The law requires that they disclose this. Read the fine print.
These are just a few things to keep in mind!
How to Keep Business Credit Separate From Personal Credit
To summarize, keeping business credit separate from personal credit is quite straightforward. Here’s what you need to do to make sure the two never impact each other.
- Apply for business tradelines with your EIN. If they ask for your SSN, make sure that they aren’t checking your personal credit.
- Avoid lenders that report activity to the personal credit bureaus. Some lenders only report positive credit. Others report only negative credit activity. Some report both. You want lenders who report nothing to these bureaus.
- Establish a business bank account and keep all finances separate from your own. Never use your business accounts for personal purposes. None of your finances should be mixed!
If you need a new credit card or loan in a pinch, you may need to leverage your personal credit. However, if you build your business credit diligently, you will eventually not need your personal credit for business purposes.
If you’ve been looking into how to start business credit with EIN, this is how you do it!
- Net 60 Vendors
- Tier 2 Business Credit Vendors
- Tier 1 Business Credit Vendors
- Business Credit Builder
- Companies That Help Build Business Credit
- How to Get Free Business Credit Scores
Dylan Buckley is a freelance finance writer and editor with 7 years of professional experience. Specializing in personal finance, cryptocurrency investments, and Fintech, Dylan is deeply passionate about creating content that helps readers make informed, confident financial decisions. He studied finance in college and maintains a credit score over 780.