There are four business credit tiers, the “standard tier,” the “high risk” tier, the “medium risk” tier, and the “limited risk” tier. I have been a consultant in several different businesses in the last few years, and one thing I've learned is how important it is for a business to understand who their creditors are. This information can help business owners keep their finances in good standing with their lenders. When a business falls behind on payments or is in bankruptcy, this information will be used by the lender to determine the strength of the business' financial position. Here, 's why knowing business credit tiers is so important.
Businesses use their credit cards to make purchases, and that purchase becomes their debt. The more they charge on their card, the more they will be required to pay back. Lenders want to make their lending process as convenient as possible, and they give businesses an excellent way to manage their borrowing by categorizing them according to their risk level.
When a business has good business credit, they are in the high-risk category. Their credit limit will be higher, and they will likely have to pay a higher interest rate on the borrowing. If a business falls behind on payments on their card, the result is the same as if they were in bankruptcy – it drops their credit score and they will have to pay even more interest. A business owner can continue to operate under this type of credit situation for a while, but it is not a long-term solution.
Businesses fall into one of two categories depending on their credit situation. The first classification is called “high risk,” and they have to pay much higher interest rates. In most cases, they will need to seek out business credit card alternatives that carry a low interest rate. Even if they are able to find something, they may not be able to get enough credit to effectively run their business.
The second classification is called “medium risk.” They have to pay less than those in the high-risk category, but they do not have to worry about being turned down for business credit cards because of their credit score. In most cases, they will be able to get the business credit card approved easily. It is important to remember that they do still need to make sure they pay off their balance on a regular basis.
The third and final type of business you may encounter when you are evaluating business credit card options is “medium risk.” These businesses have to deal with credit issues similar to those in the other two categories, but their chance of being approved is not . . . . . . as high. Instead, they are offered a credit line from a bank that is quite low compared to the other options. As with the other cards, business owners must make sure they pay their bills on time, and they need to avoid applying for additional credit just to add to their business borrowings. As long as these factors are followed, it should be relatively easy to get your business a business credit card with the best terms.