Access to capital is a journey every small business owner will experience at one point or another. And foreign small business owners also have a path to obtain loans to start and grow a business. Tax ID numbers provided by the Internal Revenue Service are the key to unlock funding to help support a business dream. Traditionally, a social security number or employer identification number is used to build credit history in the United States. However, an Individual Taxpayer Identification Number, or ITIN, is also available for foreign small business investors.
According to the Internal Revenue Service, an is a tax processing number issued by the IRS. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number from the Social Security Administration. The IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security numbers. They are issued regardless of immigration status, because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. ITINs do not serve any purpose other than federal tax reporting.
An ITIN does not authorize a person to work in the U.S., provide eligibility for Social Security benefits, or qualify a dependent for Earned Income Tax Credit purposes. But it can help a foreign small business owner build credit for a small business to purchase equipment or property to grow. Dora Herrmann, finance director of Courtesy Chevrolet in Phoenix, says small business owners with ITINs qualify for vehicle financing to grow their business. “Small business owners need options to finance their commercial vehicles and we have been supporting them to expand their commercial fleets with our financing programs,” says Herrmann. “Eligibility depends on proof of income, credit score, and proof of identity.” Herrmann adds that various industries are taking advantage of this financing opportunity, such as landscaping, janitorial and construction-related companies such as painters.
If you are a foreign small business owner, obtaining an ITIN will be a critical step to access capital. Here are four steps to obtain an ITIN and build credit for future financing.
Step 1: Apply for your Consular Identification Card. A consular ID card is a document that many consulates issue to identify the citizens of their country who reside abroad. Foreign governments use this information to collect census data from their citizens living abroad and to provide certain protections. This document is issued regardless of the immigration status of the applicant; it does not constitute a proof of legal residence and does not substitute for papers that the United States requires from foreign citizens to legally reside in this country. Many banks accept this form of identification to open a small business account.
Step 2: Apply for the Individual Tax Identification Number with the IRS. You can file Form W-7, application for an ITIN, with your federal income tax return. You must also include original documentation or certified copies from the issuing agency to prove identity and foreign status. If you qualify for an exception, then file Form W-7 with your proof of identity and foreign status documents and supporting documentation for the exception.
Step 3: Build your credit history. Many banks and credit unions will accept ITINs as a unique identifier that will allow you access to financial products and services such as loans. You will be able to apply for some credit cards, including auto and mortgage loans. Your payments on these products will be reported to the credit bureaus, and you can start building your credit history. Once you have your ITIN, you will also need to obtain your Employer Identification Number and build credit for your small business. Keep all your financial records organized and separated.
Step 4. Apply for loans for your small business. An ITIN and EIN are important tax ID numbers used to report taxes on income you generate in the U.S. Once, you have set up a banking relationship, apply for capital to help you secure a new property, purchase supplies, and scale your business.
Many of the country’s largest banks are accepting ITINs to build credit history. As with traditional credit-building strategies, an ITIN also offers a path to economic well-being for foreign small business owners contributing to the economy in the U.S.
EDGAR RAFAEL OLIVO is a bilingual business educator, economic advisor, and contributor for several media outlets. He’s a nonprofit executive who is passionate about education. He is certified in finance and data analytics and holds a business degree from Arizona State University.
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