Businesses on a growth track often reach a critical juncture when their capital needs outpace their profits, requiring additional capital to fuel their growth. However, if they are relatively new, they must establish a credit history that can pass muster with lenders. Businesses need to anticipate their capital shortfalls by working to build their credit well before they need it. Here are five essential tips for building your business credit:

Create a Solid Business Plan

Banks are still the best source of capital for small businesses; however, they only want to lend money to businesses that demonstrate a high level of competence and the ability to repay the loan. Nothing short of a well-conceived business plan will convey the essential characteristics lenders want to consider. A solid business plan that effectively addresses your business’s "what, how, and why" can build legitimacy where a solid credit history might not exist.

Keep Separate Financial Lives

To build credit for your business, you must separate your personal and business financial records. When personal and business lives are mixed, it is difficult to create a separate financial history for the business. At the very least, your business should have its own checking account, and you should consider [organizing your business] as a separate entity, such as a sub-chapter S corporation or LLC.

Build Your Business Credit History

In most cases, lenders will consider your personal credit history when considering your business for a loan; however, they also want to see how your business manages credit. Building your business credit history is really no different than building a personal credit history. You start out with retail credit cards that large suppliers, such as Office Max and Home Depot, often offer. You can also look to your vendors who may be willing to establish a credit relationship with your business, either with a small line of credit or a trade credit account. A gas credit card is also more easily obtainable and will contribute to your credit history.

Improve Your Personal Credit Score

If you really want to grow your business to the next level, you don’t want to rely upon your personal credit. You need to give your business credit; however, lenders may consider your personal credit history to initiate a relationship. An initial loan or line of credit can often be secured with a personal guarantee. Conversely, lenders are less likely to consider extending your business credit if your own credit history is suspect.

Find a Cosigner

If your personal credit is not excellent, and you don’t have any assets for collateral, you could consider enlisting someone to cosign the loan. A cosigner, which might be a person or another business, would have to have excellent credit or assets to collateralize. The cosigner would be liable for the loan, meaning they would need complete faith in your competence and character. In addition to looking to a friend or family member, you could also consider a long-time customer or a supplier who sees potential in your business.

Building credit for your business is no simple task, requiring an all-of-the-above approach which can take time. It’s essential to be prepared for the inevitable time when your business will need capital. Building business credit should be a key component of your strategy well before your business hits its growth stage.