Once you have established a corporation or limited liability company you will need to obtain a Federal Tax Identification Number also known as an Employer Identification Number (EIN).
An EIN number is mandatory, because without one, your corporation will be ineffective for building business credit. A Federal Tax ID or EIN is the corporate equivalent to a social security number. It’s a nine-digit number assigned by the IRS to business entities operating in the U.S. in order to identify each company.
This number is what identifies your business and is used to create your company’s credit file with the various business credit agencies. You will use this number when applying for credit for your company with suppliers, lenders, banks and leasing companies.
Creditors use this EIN number to pull your company’s credit file in order to determine whether or not to extend credit to your business.
When applying for personal credit; creditors use your social security number to pull your personal credit file.
The major difference here is even though you are issued only one social security number as an individual as a business owner you can obtain multiple Federal Tax ID numbers if you own multiple companies.
As a result you have the opportunity to establish multiple company credit files with the business credit agencies.
With a company credit file you truly get to leverage the power of your business. A business credit file will include your company’s payment history and may include revenues, assets and company financials depending on how much information you furnish to the business credit bureaus.
In addition your files will not show your personal debts or personal financial obligations. When it comes to personal credit you have a limit to the amount of credit you can obtain especially if your business debts are reporting on your personal credit reports. However, the amount of credit capacity a business owner can obtain if he owns a business or even multiple businesses is unlimited.
If you have an existing corporation or shelf corporation but failed to obtain an EIN number no need to worry. Tax ID numbers are not generated in a numerical fashion and there is no way for a lender to determine when your EIN was obtained and then compare it to the start of your business.
You have several choices for applying for your number and if you decide to utilize an incorporation service many times obtaining an EIN is included or offered as an option.
Once you obtain your EIN it will be your company’s permanent number and can be used immediately for things such as opening a bank account, registering with Dun and Bradstreet, applying for credit, applying for business licenses, and filing a tax return by mail. However, no matter how you apply (phone, fax, mail, or online), it will take up to two weeks before your EIN becomes part of the IRS' permanent records.
Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources for businesses.