There are a number of considerations that need to be made before you seek capital for your business. SBA loans are alternatives to using angel investors as they are far less expensive than equity capital. Most business plans that are related to raising capital typically are 40 to 50 pages in length, and you must develop this document when you are considering angel investment.
Writing a business plan for your company is a difficult process especially when you are determining whether or not you need angel investors for your company. In your business plan, you should always provide a complete breakdown of the funds that you’d need and how it will be used as it relates to your business, the return on investment, return on assets, as well as the return on equity. If you’re already in operation, you should look to take out a conventional loan were SBA loan prior to looking for an angel investor as, again, this is far less expensive than a traditional equity investment.
Loans from private investors are very expensive due to the fact that there are high risks associated with a new business venture. A demographic analysis can be produced by a third-party firm if it required by your angel investor. Due to the economic recession, most angel investors are seeking to obtain low risk investments that generate highly recurring streams of income and as such, you should be able to showcase normality in regards to your earnings on a year to year basis. You should always consider a number of different financing operations.
You should not make comparisons between angel investors and venture capital firms if you are considering angel investment. Your CPA can assist you with calculating the anticipated ROI for your business as well as other important business metrics that are related to working with a third party capital source. Many investors do not want to provide capital to distressed businesses, and if you are only seeking capital to save a dying business then you may want to try other types of financing before approaching a private investment source.
When you’re working with outside equity funding source, you should thoroughly present a plan that allows the investor to cash out their equity at specific milestones as this will be a very important factor as to whether or not you are able to obtain capital from a private funding source. Again, your attorney and your certified public account should guide you through this very complex financial and legal process as you seek and consider angel investment.