The 4 Business Credit Tiers 

There are four tiers of business financing. The lowest are the most accessible but provide the least attractive terms, while the highest are tough to qualify for but provide the most significant benefits.  

We’ll cover what they are, how they work, and how you climb the ranks. 

The 4 Tiers of Business Financing 

Tier 1: Basic Trade Credit 

Trade credit refers to a financing arrangement between you and a company that doesn’t specialize in offering credit, such as a supplier or utility company. Often called vendor tradelines, these accounts generally grant you extended repayment terms. 

Basic trade credit, the first business credit tier, refers to the most accessible accounts. You can usually qualify for them even as a new business owner with little to no business credit history, as long as you don’t have any delinquencies or defaults. 

Basic trade accounts also offer the least impressive credit benefits, such as net 30 terms. However, that doesn’t mean they aren’t beneficial. After all, a month of interest-free financing is just as much as a business credit card. 

Tier 1 is where most business owners start building their business credit journey. Generally, it’s best to target accounts with vendors that offer something you need (to avoid wasted purchases) and report to multiple business credit bureaus. 

For example, some of the best basic trade credit accounts include: 

• Quill net 30, which reports to Dun & Bradstreet (D&B) and Experian Business 
• Shirtsy net 30, which reports to D&B, Experian Business, and Equifax Business 

Before applying for any basic trade accounts, you should also consider the costs associated with them. Many tier 1 vendors have application or membership fees, which can add up quickly. 

Tier 2: Advanced Trade Credit 

Basic trade credit refers to the most accessible vendor tradelines with the shortest repayment terms. Advanced trade credit accounts are still vendor tradelines, but are a step up in both categories. 

In other words, they’re generally harder to qualify for than basic trade credit accounts. New business owners usually can’t qualify for them. Instead, you should establish a positive payment history with a few tier 1 accounts before you apply. 

In addition, they tend to offer more attractive financing terms, though they’re on the same order of magnitude. For instance, Home Depot’s commercial account is a good example of a tier 2 business credit account. 

To qualify, you should have at least a few tier 1 vendor tradelines with positive payment histories and no late payments. Home Depot also requires a personal guarantee if your business: 

• Is less than two years old 
• Employs fewer than 10 workers 
• Is a partnership or sole proprietorship 
• Has less than $2 million in annual revenue 

If you qualify for the account, you’ll gain access to net 60 repayment terms, giving you two billing periods to pay off your balances before interest starts accruing. If you pay within 20 days, you’ll also get a 2% discount as a reward. 

Tier 3: Superior Vendor Credit 

To get to the third tier of business credit, you should have around half a dozen lower-tier vendor tradelines in your business credit reports. A good benchmark is to aim for three each in tier 1 and tier 2. 

Tier 3 vendor tradelines are even harder to qualify for and are more beneficial than those mentioned in the previous sections. In addition to extended repayment terms, tier 3 is where you usually start seeing accounts like business credit cards and loans. 

For example, Amazon is a tier 3 vendor that offers a variety of credit arrangements, including the following: 

• Pay By Invoice: When you combine this with a subscription to Amazon Business Prime membership, you can gain access to extended repayment terms, ranging from net 45 to net 60.  
• Business Lines of Credit: Amazon offers a variety of financing arrangements through its Amazon Lending platform. You can apply for a traditional or interest-only business loan, a revolving line of credit, or a merchant cash advance. 
• Business Credit Card: Amazon also offers an American Express card. It has no annual fee and earns 2% back on restaurant, gas, and telephone expenses. You can also choose 3% back on your first $120K spent each year or 60 days to pay back your balances. 

As you can see, these are well beyond extended repayment terms and get into advanced financing arrangements, like you might see at a traditional financial institution. You should have an established business credit history and score before you apply. 

Tier 4: Top-Tier Vendor Credit 

By the time you start applying for tier 4 credit accounts, you should aim to have a good business credit score and a well-established business credit history. Some good targets are an 80 PAYDEX score and around 12 to 14 tradelines in each business credit report. 

Tier 4 refers to the best vendor financing arrangements. When you get this tier, you start seeing commercial auto loans, computer financing, and the best credit cards. You may even be able to work with some bank lenders. 

For example, tier 4 includes accounts like: 

• Dell’s revolving line of credit 
• Ford’s commercial vehicle financing 
• Chevron/Texaco universal business card 

Technically, it is possible to jump straight to tier 4 and secure accounts like these based on your high annual income and good credit score at the personal level. However, it generally requires that you sign a personal guarantee. 

If you use that strategy, your personal credit rating and finances will be at risk. Working your way up through the lower tiers and establishing your business’s credit is the best way to avoid taking personal responsibility for its debts. 

Build a Foundation for Your Business 

Before you start climbing your way up the business credit tiers, it’s best to establish your business as an entity separate from yourself. That helps you avoid taking on responsibility for its debts from the start, protecting your personal assets and credit. 

For example, here are some of the most significant steps you can take: 

• Form the right business entity: Sole proprietorships are legally indistinguishable from their owners. In contrast, setting up your company as a corporation or LLC makes it a separate entity and limits your personal liability. 
• Set up a business bank account: Not only does having a separate business bank account make it easier to do your bookkeeping, but many creditors will check for one (and a bank reference) when you apply for credit. 
• Have a business address and phone number: Third parties should be able to communicate with your business directly. If they have to use your contact information, it looks more like the two entities are the same. 
• Get a DUNS Number: A DUNS number is a unique nine-digit number used to identify businesses in the D&B database. You’ll often need to provide it when applying for business credit. 
• Get an Employer Identification Number (EIN): This is your business’s tax identification number. Think of it as your company’s Social Security Number (SSN). In fact, you can apply for credit with it instead of your SSN to avoid taking out financing in your own name.  

Each of these steps helps paint the picture that your business is an entity separate from yourself. The more of them you take, the easier it will be to borrow in your business’ name without using your SSN or signing a personal guarantee. 

Check Your Business Credit Scores 

When you start climbing the business credit tiers and building a positive payment history, no business credit bureau will have enough data to generate a credit score for you. That should change somewhere after the first three to five accounts. 

By the time you’re working through tier 2, you should look to see if you have a business credit score. Once you have enough of a history to generate one, check it regularly to make sure you're progressing. 

You can get a copy of your various business scores and credit reports through Business Credit Reports. 

Build Business Credit 

Building business credit with vendor accounts traditionally requires a significant investment of time and money. There’s nothing wrong with slow and steady, but eCredable’s Business Lift program offers a much more efficient method. 

When you connect your trade credit accounts to our service, we’ll report them to the credit bureaus for you, transforming them into vendor tradelines. That includes up to 24 months of past payments, helping you build years of business credit history overnight! 

Instead of paying for membership fees and minimum orders across a dozen new vendor tradelines, you only have to pay for our $19.95 monthly subscription. To top it off, we’ll also report that payment to the credit bureaus. 

Sign up for eCredable today and take the shortcut to good business credit!