If you’re a small or mid-sized business exploring potential business funding sources, then you’ve likely heard of “angel investors”. And really, with a funding partner that shares a name with a heavenly being that glides around spreading love and performing miracles — how can you go wrong?
Well, not that we want to pour cold water on anyone’s inspiring business funding journey (hey, it’s always important to think positive!), but many business owners over the years have told us that their angel investing dream turned into a lingering nightmare. And here’s why:
Angel Investors are Not Always Angels
Angel investors are NOT – we repeat, NOT – superior beings who, out of a sense of nobility, feel an obligation to go around and provide business funding to worthy recipients. This isn’t to say that angel investors are unethical or behave improperly; because the vast majority of them are legitimate and above board. But the notion that their motives are altruistic or even spiritual (as the name implies) is a myth – and any angel investor worth her or his wealth will be the first to admit this.
Angel investors, like all other investors, are motivated by their own profit – as they should be. And, if a prospective angel investor determines that your business is profitable – and as such you’ll be able to pay back the loan in full and on time – they might be willing to loan you the cash you need.
Sign Here…and Here…and Initial There…and There…
But even if you manage to attract the attention of an angel investor – and this is a big if, since there are LOTS of competition out there – you’re likely going to be presented with an iron-clad contract that rivals anything your bank would submit for several of your signatures and initials.
What’s more, you should expect the loan term to typically be short. Most angel investors have no interest in hanging around for years while your business grows. So, there’s a limited window for you to generate business profit and pay back your loan.
Speaking of interest: of course there’s going to be an interest amount charged; and it’s most likely going to be higher than your bank (which stands to reason). Plus, if you borrow more than you actually need or find yourself in the fortunate position to pay the loan back early, then you shouldn’t necessarily expect to get a break on interest costs.
Remember: your angel investor will have incurred an opportunity cost by lending their cash to you vs. lending it another business owner. And while they might be impressed that you can pay your loan back early, unless it’s explicitly allowed in the contract, they most likely won’t want to accept a small interest payment. So in other words: you can pay your loan back early if you can or want, but expect to pay 100% of the agreed upon interest.
Ultimately, we aren’t saying that you should steer clear of angel investors. They absolutely fill a need for businesses looking for funding. Rather, you should simply go into any potential funding arrangement with your eyes wide open. Angel investors are simply private, wealthy investors with a lofty label. The legitimate ones will even tell you this right off the bat. They aren’t superheroes, and they don’t want to be paid back in thank you cards or pats on the back. They’re VERY shrewd and successful business people who leverage their money in order make more money (or at least try to). It’s really that simple.
Call Mulligan Funding at 855-326-3564 to discuss your financing options today!
The information shared is intended to be used for informational purposes only and you should independently research and verify.
Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.