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Neil Bellamy, head of technology, media and telecoms at NatWest, looks at the most common mistakes made by startups and scaleups when applying for finance.

Applying for finance can be a daunting task. You are putting yourself and your business out there – most often to grow or take on a new opportunity.

Most applications can now be done online and the process is easier than ever. However, it’s still easy for startups to fall into a number of common traps.

Here are the top 10 common mistakes made by startups when applying for finance:

1. Applying too soon

As with anything, timing is key.

Make sure you choose your timing carefully and don’t apply for debt before your business is ready.

As I always go back to, ask yourself: do you have a product that works and customers who are prepared to pay for it?

2. Not doing your research

Make sure bank finance is right for you.

Look into other options and make sure you are on the best path for you and your business.

If you decide debt is the correct route, make sure you research which type of loan suits your needs best.

There are different loans and types of finance best suited for long or short term investments and other methods like invoice finance or asset finance which may work best for your business.

3. No business plan

It may seem like an obvious step, but make sure you have a strong business plan to help back up your application.

Many startups apply for finance with an underprepared or even non-existent business plan.

A business plan is essential for a lender to see your goals and specifically, how you intend to reach them.

4. Over-borrowing

Many businesses make the mistake of asking for more than they need.

Banks use a variety of formulas to work out how much they think you can afford to borrow. So it makes sense that you do not overstretch.

However, it is a good idea to build a contingency into the amount of working capital you budget for – there are always things that come up that you haven’t anticipated.

5. Outdated finances

Make sure your finances are up to date.

Whether you are seeking a personal or business loan, you shouldn’t apply without having the proper financial documentation.

This is an area where many people put the cart before the horse, and try to get a loan without making sure their financials are up-to-date.

6. Underestimating personal credit history

Lenders will look at not just your business plan and projections of sales and profits, but also your personal finances.

Don’t underestimate the value of your personal credit history when applying for finance.

If a business owner hasn’t shown the diligence in managing their personal credit, there is the potential that they will take the same approach to their business credit.

7. Not reading the small print

When you’re starting up and keen to get your idea off the ground, it’s easy to skip over the terms and conditions – particularly in complex lending documents.

It may seem like an obvious one, but make sure you read all of the T&C’s in your loan contract.

Often startups are so keen to get funding sorted and their plan on the road that they skip over some important information, vital for their business going forward.

So, make sure you are vigilant and know what you’re signing up for.

8. Not explaining

Sounds simple but make sure you are specific about what the loan will be used for.

Make sure you demonstrate what your needs are and how this loan will meet those needs.

I always say if you build a good relationship with your bank/relationship manager even before you need finance, it will be easier to secure finance once needed if they already understand your businesses values and potential.

9. Not putting your money where your mouth is

Failing to have some equity in the project. Not unlike a down payment when buying a home, having some equity in a business project significantly enhances your chances of securing a business loan.

If you’re not invested in the project, or in the business itself, the lender will be less enthusiastic about taking on such a risk.

For most loans you will need to provide some collateral, should there be a default in payment.

10. Don’t forget it takes a village

Make sure you have the correct professional and personal support around you.

They say it takes a village to raise a child, but this can also apply to getting a business off the ground.

Starting up and running your business can be physically, emotionally and financially draining – so make sure you have the right support in place to help you succeed.