Funding a a small business with a low credit score, no ITIN or EIN

Crowdsourcing platforms, sales history could help

Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

I have a bad credit score and no EIN or ITIN. How do I fund my small business? 

There are alternative ways to fund a small business, which can provide an influx of cash without the risk of high interest:
  1. Alternative lenders.
  2. Crowdsourcing site.
  3. Established marketplace.
Expert Q&A

Check out all the answers from our credit card experts.

Dear Your Business Credit, 
Hi Elaine! I came across an article of yours and wanted to ask you your advice on several areas of contradicting information I have found on the internet for starting/obtaining small-business credit.

Let me tell you where I am in the process of starting my business. As of right now I have no ITIN or EIN number but will be filing for my LLC next month. I cannot use my personal SSN due to a recent breakup which has crippled my personal credit unfortunately.

I have a unique and very profitable marketplace for my business. I just need the funds to get it up and going. I have seen articles stating some banks/lenders don't require you to have a business ITIN or EIN to obtain a card. Is this true? And if so what banks or financial institutions will to your knowledge? If untrue, once I get my EIN and/or ITIN number which banks/credit lenders would be willing to offer a loan to get me off the ground and running with no established business credit?

Honestly, I'm looking for between anything between $25,000 to $75,000 to get me started but anything lower would suffice to get this snowball rolling downhill. Any advice, expertise, or suggestions would be very helpful right now since this is literally the only area I am lacking. – Richard

Dear Richard, 
There’s a lot of confusing information out there. When you start a business, your ability to get traditional forms of credit will be based on your personal credit.

Small-business credit cards and loans generally require a personal guarantee and somewhere in the process, you will almost always have to provide a social security number. (For more on this topic, check out my previous column “Will an ITIN help me get a business card without a personal guarantee?”)

Alternative financing an option

That does not mean you cannot start the business. Some entrepreneurs in your situation turn to alternative financing. For a look at how alternative lenders work, check out “7 tips for using online alternative business lenders.”

Generally speaking, alternative loans will cost you more than a traditional bank loan, sometimes quite a bit more, but one benefit for an entrepreneur in your situation is there are products that do not require a personal guarantee.

However, I do not recommend that anyone with severely battered personal credit borrow money to start a business. Business startups, even very promising ones, don’t always work out as planned. There is a lot of potential to make a bad situation worse by loading up on debt.

Even if you borrow money that has no personal guarantee, you will have to sign an agreement that would make the lender whole in some way, such as by seizing the collateral you put up. That will have consequences for you.

Tip

Tip: Even if you borrow money that has no personal guarantee, you will have to sign an agreement that would make the lender whole in some way, such as by seizing the collateral you put up. That will have consequences for you.

Get supporters

I’d suggest finding another way to finance the business and, in the meantime, get advice from an attorney who specializes in credit-related issues to deal with the credit problems from the breakup. The sooner you can repair your personal credit, the sooner you will have to affordable financing in the future.

Plus, clearing the mental burden of that stressful situation will free your mind to focus on growing your business.

You didn’t mention what type of business you are starting. If it is a product-related business, consider running a crowdfunding campaign on a site such as Kickstarter or Indiegogo.

Entrepreneurs often create a prototype or visual representation of the product they would like to make and a description of its merits and sometimes ask those would like to buy it to pay for pre-orders. The money from these pre-orders is then used to actually produce the product. It’s essentially a way to get your customers to finance your business.

Test the market

If you would like to sell a service, try test marketing it online, either through a platform that sells services in your industry or your own website. For instance, you might sell a professional service on Upwork or Freelancer. If you start your own site, it may be hard to get eyeballs at first. It may be helpful to do pay-per-click marketing on a site such as Google or Facebook to target your ideal clients and see if they buy. 

Putting your idea out into the marketplace will give you access to valuable feedback and, if people buy what you’re selling, bring some cash flow into the business. It could turn out that you don’t need as much money as you are projecting to get going.

Good luck. I hope you’ll write back and let me know how your business turns out.  

See related: Funding a small business with credit cards, 5 loan options to fund your small business



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Updated: 04-23-2018