Will an ITIN help me get a business card without a personal guarantee?
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Dear Your Business Credit,
I majored in finance and business in college. I have a very good understanding of how business credit works and what it takes to establish it. Is it possible to switch from an Employer Identification Number (EIN) to an individual taxpayer identification number (ITIN)? My Social Security number is attached to the EIN, and I did not want to have my Social Security number be anywhere involved in my business. I also wanted an ITIN so I can apply for business credit solely using my ITIN. -- Todd
Many entrepreneurs are in the same situation as you: They'd like to get a business credit card without assuming responsibility for it as an individual.
Unfortunately, the workaround you envision is not possible.
Here's why: An ITIN is a nine-digit number that the U.S. Internal Revenue Service issues to people who are required for U.S. tax purposes to have a U.S. taxpayer identification number -- but who don't have and aren't eligible for a Social Security number, according to the IRS website.
Go to the IRS page on ITINs and you will see that you must complete form W-7 to get an ITIN. At the top of that form, it clearly states: "Do not submit this form if you have, or are eligible to get, a U.S. Social Security number."
You say you already have a Social Security number, so you are not eligible for an ITIN.
It can be hard to build small-business credit without tying it to your personal credit or identity in any way. In a previous column, I checked out the applications for a sampling of small business credit cards, and ultimately, I did not find one that lets you apply without providing a Social Security number.
However, when you phoned me to follow up on your email, you mentioned you had actually succeeded in finding a couple of cards that do not require a personal guarantee. One of the banks you mentioned got back to me with details. This card won't help very small businesses, but if you are more established, it may be useful.
For example, The Bremer Bank Visa Signature Business Company Card is available to established medium- to large-sized incorporated businesses, LLCs or LLPs with annual sales between $1 million and $10 million and minimum annual net income of $350,000 in each of the previous two years, according to a bank spokeswoman. No personal guarantee is required, according to the bank's website.
Having an account with Bremer is not required. However, the spokeswoman said in an email that it is a factor in the approval process.
There's a wrinkle. A Social Security number from an authorized officer of the applicant company -- that is, someone who can accept binding agreements on the company's behalf -- as well as of the employee authorized to use the card is mandatory. The application also requires the organization's tax identification number.
If you are set on keeping your personal finances separate from those of your business, I would recommend considering other types of financing that don't require a personal guarantee. Your options include loans from friends and family, crowdfunding, equity investments from angels or venture capitalists and alternative financing.
They each come with trade-offs.
Friends-and-family financing is potentially cheap and easy to secure (Mom and Dad aren't usually out to charge 30 percent interest), but it can jeopardize your most important relationships if you fall behind on paying back a loan.
Crowdfunding campaigns don't leave you indebted to any financial backers (unless you promise them a gift you can't deliver), but can be a lot of work, and they can be hard to pull off if your product or service isn't as much of a crowd-pleaser as, say, the Coolest Cooler, which raised 26,000 percent of its target on Kickstarter.
Equity investors have deep pockets, but they are usually looking for scalable companies that will eventually be worth millions -- or, in their wildest dreams, billions. If you are running more of a Main Street business, they are not likely to flock. Plus, you have to give up some of the ownership of your company to get their backing.
And alternative financing is not hard to come by, but some fast-growing methods, such as advances on your accounts receivable, can be costly. We discussed some of them in "New business financing sources to try when the bank says no."
Don't like any of these options? Then consider financing your growth from cash flow, a method that many a startup has used. It will force you to be disciplined about spending in your business. That's a habit that will help you no matter how big your business grows. And it requires no personal guarantee!
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