Your Business Credit

Credit for startups almost always requires your Social Security number


You may be asked for an Employer Identification Number (EIN) but you will almost certainly have to supply a Social Security number too

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QuestionDear Your Business Credit,
I have all I think I need to get my business started. I just need a little more capital when applying for business credit. Do I use my new EIN number or my Social to obtain the credit needed, as the applications ask for both at separate times? — Business Starter

AnswerDear Business Starter,
To answer your question, I spoke with Amber Colley, a director with Dun & Bradstreet Credibility Corp. “Normally, a business owner always has to include their Social Security number,” she said.

Many banks, which lend to small businesses at the best rates, don’t make many loans to startups. If you find one that does, you will very likely have to give a personal guarantee. While you may be asked for an Employer Identification Number (EIN), it does not seem likely that you will be able to avoid providing a Social Security number somewhere in the application process, too.

Since your personal assets will be on the line, be careful not to borrow more than you can reasonably pay back. Generally, when I have spoken with entrepreneurs who have gotten bank loans based only on the credit of a business, they are running substantial-sized firms with fairly long track records.

There is a reason banks want to know you have the personal assets to repay a loan. It is natural for entrepreneurs to be optimistic about a new business, but generally it takes months, not weeks, to generate steady enough cash flow to pay back a big debt even if you hit a bump. And it may take a year or two before the business can actually support you. It is possible to get a higher-interest loan from an alternative lender for a startup but if you go that route, make sure you do not get in over your head in debt. These loans can be very pricey.

I think it’s always best to minimize how much you have to borrow up front. The simplest way to do that is to start a new business part-time and continue taking a salary from your day job until your startup is bringing in revenue steadily. For instance, if you want to start your own consultancy, you might keep your day job for the first year and try to drum up some freelance projects you can do on your time off. The money you earn by freelancing could add to your war chest for the new business.

You can also gain valuable insights through part-time work that’s related to your dream business. If you want to start a restaurant, for instance, try running a catering business first to see if there is demand in your area for the type of food you plan to sell. Running your business on a pilot basis will help you get a handle on how much money you really need to launch it full time. And in the long run, it’s better than diving in when you are undercapitalized.

Once your company is on its feet and you’ve established some business credit, it is possible to negotiate with suppliers to replace your Social Security number with your DUNS number, a unique nine-digit number supplied by D&B for each physical location of your business. You might, for instance, negotiate arrangements that if you pay all of your invoices on time for the next six months, the vendor will remove your Social Security number from the credit application and rely entirely on your business credit.  “A lot of people are not aware you can do that,” says Colley. This helps to create a payment history for your business, which is one of the first steps to establishing your company’s business credit.

If you want to go this route, it is important to make sure your business credit reports are complete, says Colley. For more information on how to do that, check out “How businesses can start on the road to credit.” Pay attention to small details. The lender needs to have a complete picture of your business to make lending decisions, she says.

Good luck!

See related: Will an ITIN help me get a business card without a personal guarantee?, Business or personal credit: Which can be built faster?, Should you get a credit card for your new startup?

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