Most business credit cards involve your personal guarantee. You sign the paperwork, meaning if the business doesn’t pay, you’re liable. The card company checks your personal credit score, and missed payments or high amounts owed can negatively impact your credit report. For many business owners, that’s not the best deal.
However, there’s an alternative with which more people are becoming familiar. Certain business credit cards run solely on your EIN – your employment identification number, a.k.a. your business tax ID – and do not involve personal credit whatsoever. No personal guarantee, no personal credit check, and activity on the card does not impact your personal credit profile.
These cards appeal to business owners who want true separation between their business and personal finance. Whether it’s the right fit in any situation or not, knowing how it works allows you to determine if it will work for you.
How EIN-only cards work
The process of applying for a business credit card that only uses your EIN does not operate through your personal credit profile. Instead, the company assesses your business credit profile. They want to know how long you’ve been in business, if you’ve opened other business credit options, and whether you’ve paid on time in the past.
The application process assesses the business as a separate entity. You will need your EIN (which you get from the IRS upon starting your business), articles of incorporation/paperwork stating your business is established along with information about revenue and how long you’ve been in operation. Some companies want to see tax returns or bank statements confirming that the business has activity and income.
Because it does not operate through a personal guarantee, the card companies take a risk – they cannot come after your personal assets if you default. This is why businesses need to establish themselves with stable credit history first.
What you need to qualify
These qualifications are typically harder than standard business credit cards. Most companies want to see that you’ve had a business for at least 12 or 24 months. They want it to be a stable operation generating income – usually a minimum of $50,000 to $100,000 per year but this differs with every card issuer.
Your business also needs to have established business credit. This means having other accounts (vendor credit lines or other cards) associated with the business that report to business credit bureaus. If your business has no established history of credit no matter how new it is, it’s unlikely to get approved for an EIN-only card.
The type of structure matters too – a sole proprietorship can often qualify but many issuers want it to be separated from the owner (LLCs, corporations, etc.). Searching ein only business credit cards shows you which issuers require what and which might be the best fit for you.
Why keeping them separate benefits you
The primary benefit is keeping your personal credit safe. If your business hits hard times or you’re carrying a lot of balances because you’re actively expanding, that does not show up in your personal credit profile. Essentially, what happens with business credit does not affect personal scores.
This separation also helps those applying for personal credit as lenders who look into those finances will not see debt in addition to what’s owed on a mortgage or car loan – the lenders find a clearer picture (which is beneficial when applying for loans or personal cards).
There’s also some psychological separation where people won’t feel as tempted to use business credit for personal purchases (which shouldn’t be done anyway but when there’s everyday reality separating the two, it helps).
How an EIN-only card builds business credit separately
Using an EIN-only card helps build EIN-only business credit profiles on their own. These cards report to Dun & Bradstreet, Experian Business, Equifax Business, etc., and as users pay on time and responsibly use their cards, their credit history is built solely for them.
This matters going forward. If you ever want a loan for your business, a vendor’s line of credit, or other financing options down the road, having a solid business credit history makes it easier to get approved – and offers better options. This is an asset in the name of the business, not in yours personally.
The downsides
These cards generally feature lower limits because the issuers do not have a tie-in with any personal assets. Therefore they are conservative with what they provide as initial limits. Instead of $50,000 because you would have a personal guarantee, you might get $10,000 or $15,000.
Additionally, it takes longer to apply for EIN-only cards as there are more documents required for processing. More verification needs to occur from the issuer’s end to establish whether it’s a good idea to approve and give any money out, so expect waiting days instead of instant approval.
Finally, not all businesses will qualify as certain EIN-only cards may require businesses with stability – a year or two – and adequate revenue history. If you’ve just started, you may need to gain access through another card (standard option with a personal guarantee) before transitioning to an EIN-only card later.
When it makes sense
EIN-only cards make sense when businesses have been established for quite some time with steady revenue. If you’ve been open for a few years making consistent money and building some semblance of credit already, you’re in a great position to qualify.
They also make sense when you plan on expanding and may be carrying high balances temporarily – as you invest in inventory or consider larger projects – keeping that debt from personal credit makes sense.
Business owners with exceptional personal credit (and who want to keep it that way) choose this option because if you’ve worked hard to build great personal credit, using EIN-only cards allows you access without compromising what you’ve built as an individual.
How to get started
If this sounds like a fit for you and your situation, start by checking your own business credit reports; see what’s there now (if anything) and if there’s anything that needs fixing along the way before applying.
Next, search online which potential issuers offer EIN-only options for either good or bad – it’ll give you what they require ahead of time.
You should have all documentation ready – from business paperwork to tax returns to bank statements – and whatever other existing references from other companies that can verify that you actually do have a legitimate active operating and revenue-generating business.
Understand that even if you don’t qualify now but use other accounts to build up (credit lines through vendors, business accounts that report to various bureaus) as well as potentially starting out with standard options (with your personal guarantee), you’ll eventually qualify for EIN-only cards once you have stable options.
What it comes down to
Easier separation comes by accessing credits without using your personal option as it creates cleaner lives apart between potential bad decisions with either financing segment and it’s an easier way to protect financial integrity. It asks more from the business upfront in terms of establishing operations and business credit history; however, for businesses that qualify – it’s an intelligent way to get access while maintaining true separation between what’s business and what’s personal.
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