When you’re trying to grow a startup, getting a business loan can feel like a big hurdle. But securing financing – whether for expansion or operational costs – doesn’t have to be complicated.

Nearly all US banks offer small business loans of at least $1 million USD. If you already have an Employer Identification Number (EIN), you’re in a great position to start the process of getting a loan. An EIN is not just a tax ID – it can also help you secure a loan.

Below, we explain what an EIN is, how to use yours to access funding, what loans are available, and how to prepare for the loan application process.

What’s in this article?

• What is an EIN, and how does it affect loan eligibility?
  
• How to use an EIN to access business credit
  
• What types of loans are available with an EIN?
  
• How to prepare start-up financials for loan applications
  
• Alternative financing options using an EIN
  
• How does an EIN impact interest rates and terms?
  

What is an EIN, and how does it affect loan eligibility?

An EIN is a unique, nine-digit number issued by the US Internal Revenue Service (IRS) to identify a business for tax purposes. Think of it as your business’s Social Security Number. Beyond tax filing, an EIN also helps build your business’s credibility and provides access to loans and other types of business funding.

Here’s why an EIN matters for securing loans:

• Establishing business identity: Lenders want to know that your business is legitimate, and having an EIN is one of the first steps in proving it is. Having an EIN shows you’ve registered your business and taken steps to operate separately from your personal finances, which is important for loan approval.

• Separating personal and business finances: Using an EIN helps keep personal finances separate from business finances. Applying for a loan using your EIN signals that the business is responsible for the loan, not you personally. This reduces your personal liability.

• Building business credit: An EIN is necessary for building a business credit score. Lenders often evaluate your business credit when determining loan eligibility. If you’ve used your EIN to get business credit cards and paid them on time, your chances of approval can improve.

How to use an EIN to access business credit

Once you have an EIN, you should use it to separate business and personal finances and start building your business credit. Strengthening your business’s credit score and financial history increases your access to better loan terms, higher credit limits, and more funding options.

Here’s how to use your EIN to build your business’s financial standing:

• Open a business account: Use your EIN to open a business bank account. This is the first step to establishing a clear financial identity for your business that’s separate from your personal finances.

• Establish vendor accounts: Use your EIN to establish credit terms with vendors or suppliers that report to business credit bureaus. Pay your invoices on time to build your business’s credit profile.

• Apply for business credit lines: Apply for business credit cards or credit lines in your business’s name. Building your business’s credit history can lessen the impact of your personal credit history on business loan applications.

• Pay on time: Pay everything from loans to vendor accounts and credit card payments on time. Having an EIN with a strong history of on-time payments can lead to better financing opportunities in the future.

What types of loans are available with an EIN?

An EIN grants access to a variety of loan options designed specifically for businesses. These loans depend on business credit rather than personal credit, which can provide more flexibility and protection.

Here are some of the loans available with an EIN:

Business term loans

Business term loans are the most common type of loans for businesses. Businesses borrow a lump sum and pay it back over a fixed period with interest. Term loans are useful for large investments, such as business expansion, equipment purchases, and staff hires.

Business credit lines

Business credit lines enable businesses to draw from a set amount of funds as needed. Businesses pay interest only on the amount they use, which makes credit lines a flexible option for managing cash flow or covering unexpected expenses.

Small Business Administration (SBA) loans

In the US, the SBA offers loans specifically for businesses. While it doesn’t directly issue these loans, it backs loans provided by lenders. SBA loans typically require an EIN and strong business credit. They are known for having favourable terms, lower interest rates, and longer repayment periods.

Equipment financing

Businesses that need to purchase equipment can seek equipment financing where the equipment itself secures the loan. This type of loan allows businesses to spread out the cost of expensive equipment over time while keeping their cash flow intact.

Invoice financing

Invoice financing is a quick way to access cash for businesses that handle a lot of invoices. With this option, lenders advance a loan based on outstanding invoices, and the business repays the loan when those invoices are paid.

How to prepare startup financials for loan applications

When you apply for a business loan, lenders look for business stability. Here’s how to prepare your start-up’s financials for a loan application:

• Assemble up-to-date financial statements: These statements clarify your business’s financial health. They usually include income statements (or profit and loss statements), balance sheets, and cash flow statements.

• Check your business credit: Ensure there aren’t any mistakes or surprises that could hurt your chances of approval. If you find issues, resolve them before applying for a loan. Your EIN and business credit score are interconnected, so keep everything up-to-date.

• Prepare a cash flow forecast: This shows lenders how you plan to manage your loan payments and ongoing expenses. This document also predicts your future income and expenses over the coming months or years, giving lenders an idea of your repayment ability.

• Confirm your tax filings are current: Make sure you’ve paid any outstanding taxes. Be ready to submit copies of recent tax returns with your application so lenders can see that you’re in good standing with the IRS.

• Create a business plan: This is especially important if you’re applying for a loan to fund growth or expansion. It should outline your business model, market analysis, growth projections, and how the loan will help you achieve your goals. Explain how you will use the funds and how they will benefit your business.

• Prepare your personal finances: These will be reviewed by lenders. This review is especially likely if your business is young or doesn’t have a long credit history. Be ready to submit personal financial statements, including your credit score and tax returns.

• Organise supporting documents: Lenders might request additional information, including licences, contracts, and legal documents related to your business. Gather everything ahead of time so you can submit a complete application without delays.

Alternative financing options using an EIN

If traditional loans aren’t suitable for your startup, you can explore several alternative financing options using your EIN. Having an EIN with a strong financial history can help boost your credibility and secure more favourable loan terms from different kinds of lenders.

Here are some options to consider:

• Business credit cards: Business credit cards provide a revolving credit line tied to your EIN. You can use them for short-term expenses and build your business credit with responsible use.

• Merchant cash advance (MCA): An MCA provides up-front cash in exchange for a percentage of your future card sales. While it provides quick access to funds, it comes with high fees.

• Crowdfunding: Platforms such as Kickstarter and GoFundMe let you raise funds from the public.

• Vendor financing: Some suppliers allow you to purchase goods and pay them off over time.

• Business grants: Various government and private organisations provide business grants through competitions. Businesses don’t need to repay these grants.

• Peer-to-peer lending: Online peer-to-peer lending platforms connect businesses with individual investors.

How does an EIN impact interest rates and terms?

When securing financing for your business, it’s important to apply with your EIN to separate personal and business finances. Lenders will use your EIN to check your business’s credit score and financial health and to set your loan rates and terms.

A strong business credit profile typically leads to lower interest rates and more favourable loan terms. However, a weak profile might mean higher rates or a requirement for you to personally guarantee the loan. Similarly, a solid financial track record associated with your EIN (e.g., revenue, assets) can help you qualify for higher loan amounts and longer repayment terms.