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Angel Investing: What You Need to Know

There are a number of ways for you to acquire funding for your new business. At the very beginning of the process, most businesses utilize small credit cards and loans from friends and family to meet their financial needs because most banks will not lend to a business that is less than three years old or doesn’t have sufficient equity.

So how can your business find funding when your original sources have all dried up, but you are not yet eligible for a bank loan? This is where angel investors come in.

What is Angel Investing?

Angel investors are affluent individuals or groups who provide funding to start-up businesses that may be caught in this financial limbo. In contrast to their cousins the venture capitalists – who rarely loan less than $1 million – angel investors typically provide loans in the range of $25,000 to $50,000. The size and extent of these loans make them perfectly suited to the needs of many new small businesses. In 2010 alone, angel investors spent over $20 billion to fund roughly 61,000 new businesses in the United States.

Unlike banks, angel investors often wish to be involved in the process of building and running your company beyond simply ensuring a return on their loan. Their investment is not limited to the financial; they may want to sit on your company’s board and get their hands dirty helping your business become a success.

Applying

Angel investors require a similar application process to that of bank loans. This will include reference and credit checks, an analysis of your business plan, and a review of the competitiveness of the market. You may need to make several presentations or appeals to the group in the process of applying for funding. This experience alone can be invaluable in helping you design your future fundraising campaigns.

Angel investors provide your startup with not only financial assistance, but many other benefits as well. They can give you access to additional support networks, specialized industry knowledge, and assistance in finding additional investors and fundraising providers. Angel investors take your startup business seriously, and will be personally involved in making sure that it grows into a financial success.