Why an Employer Identification Number (EIN) Is Critical to Your Business Credit

Why an Employer Identification Number (EIN) Is Critical to Your Business Credit

Why an Employer Identification Number (EIN) Is Critical to Your Business Credit

As a small business owner, you’ve probably seen a request for an employer identification number (EIN) in form fills for applications of all kinds, including business loans, credit cards, and bank accounts.

The Internal Revenue Service (IRS) created the EIN in 1974 as a business identifier and uses it to keep track of taxes owed. Today, it’s advantageous for small businesses to have one as it can open the doors to a variety of business services and help build business credit. In this article, we’ll cover everything you need to know about how to get an EIN for your business.

When Does Your Business Need an EIN?

Strictly speaking, the IRS only requires certain business entities to have an EIN. To see whether your business falls in this category, visit the IRS website. In general, you will likely need an EIN if:

  • Your business has employees (this is also applicable if you’re a sole proprietor)
  • You have a Keogh plan for retirement
  • Your business is a corporation or partnership
  • Your business withholds taxes on income other than wages paid to a non-resident alien
  • Your business files tax returns for Employment, Excise, Alcohol, Tobacco, or Firearms
  • You’re involved with organizations pertaining to trusts, real estate mortgage investment conduits, non-profit organizations, farmers’ cooperatives, or plan administrators

However, you should consider getting an EIN even if you don’t fall in any of the categories above. There are three key benefits that make them a powerful tool for small businesses. 

First, most business bank account applications require an EIN number. Having a business checking account can increase your chances of getting a business loan, and having an EIN can increase your chances of getting a business bank account .

Second, many applications for business services give you the option of submitting either an EIN or your Social Security number (SSN). Obtaining an EIN means you don’t have to use your personal Social Security number as often, which may reduce the risk of identity theft.

Third, EINs generally give your business an added level of professionalism. This can be helpful when it comes to buying inventory, applying for loans and other services, or even when networking. For freelancers, it may show prospective clients that your business is much more than just a side gig.  

How Do I Obtain an EIN?

Whether you need an EIN for an existing business or new business, getting one is a straightforward process. If your business is located in the United States or U.S. Territories, simply fill out Form SS-4 with the online application provided by the IRS. During the application, you’ll need to provide information including your business name, federal tax ID number (your Social Security number will likely be the easiest option), and business structure.

Once your application is validated, you’ll immediately receive a nine-digit number. This is your new EIN. 

The IRS also offers the option to apply by fax, snail mail, or telephone for international applicants.

Lost or Misplaced Your EIN? Here’s How to Do An EIN Lookup

In the event you can’t find your business’s EIN, the IRS recommends the following steps:

  • Try to locate the digital receipt of your EIN application (either via an EIN confirmation letter in your email or from a saved file on your computer)
  • If you used your EIN to apply for a bank account or state or local license, contact the relevant parties to secure your EIN
  • Try to locate an old tax form that has your EIN
  • If all else fails, call the IRS’ Business & Specialty Tax Line at 800-829-4933 for help. The hours of operation are 7:00 a.m. to 7:00 p.m. local time, Monday through Friday

If you have filed a document with the Securities and Exchange Commission (SEC), you may also be able to find your EIN by pulling up filings in EDGAR

Is an EIN Important for Your Business Credit?

The short answer is “yes.”

While you don’t need to have a business EIN to establish business credit, note that many business credit bureaus track EINs. Considering it takes just minutes to get an EIN, it’s a good idea to have one to make sure you’re covering all your bases when it comes to building credit.

Some business credit cards are also EIN-only, which means you can apply without a Social Security number. If you pay your balance on time, business credit cards are another good way to build your business credit. 

We cover how to build business credit in-depth here. Nav can also help you build your business credit through our services, which provide full business credit reports, one-on-ones with credit specialists, and report your account payments as a tradeline.

Why an EIN Is Important For Your Business Taxes

The IRS uses the EIN as a tax identification number. If your business falls in one of the categories discussed in the “When Does Your Business Need An EIN?” section above, filing your business tax returns with an EIN is required. As a taxpayer, make sure to use your EIN as failing to do so may result in penalties and fees.

How Much Business Credit Do You Need Before Getting a Business Loan?

In general, lenders look for a “good” business credit score, which means 640 and above. This gives them more confidence you’ll be able to repay the loan. Nav’s plans can walk you through step by step on how to establish business credit.

However, not every loan requires a 640+ business credit. One of the easiest ways to find the right loan is to create a free Nav account. Our platform syncs with your business data to show you the small business loans and credit cards you’re most likely to get. This lets you spend more time building your business and less time looking for funding.

We can also help you find the right business formation service so you can easily incorporate your business as a sole proprietorship, limited liability company, or whichever business structure is best suited for your needs.

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