How Business Credit Scores Are Determined

When you first open your business, your business credit score may be nonexistent. This may require you to open loans with your personal name. However, aside from these initial loans, your personal credit will have nothing to do with your business's credit. In fact, business scores are calculated with different factors.

Balance Sheets

The primary factor used to determine a business's financial health is its balance sheet. Reviewing your financial report that lists your assets, debts and liabilities will be a top priority of any lender considering you for a loan. Building up your balance sheet takes more than just paying off debts on time. You must show you have an asset base large enough to continue to fuel your operations in the future. You must also show you have turned past debts into income at a high rate in order to remain financially appealing to lenders.

Income and Debt Ratios

Your business's income and debt ratios play large roles in your credit score. A lender will first view your balance sheet, comparing your assets to your liabilities. Then, a lender will view your accounts receivable, attempting to learn your anticipated profits over a certain period. Even a business with a low asset base can be a good borrower if the business has high income but relatively few debts to its name. For example, a web design company has few assets other than a personal computer. However, if the company is owned and operated by one person with no debts, this low asset base may not matter. As long as the individual's income is high enough to repay debt costs, a lender will understand the operation is very lean yet deserving of a loan.