To celebrate Valentines Day, I thought I’d pick a nice romantic term from the Investopedia lexicon this week. Love Money is seed money or capital given by family or friends to an entrepreneur to start a business. The decision to lend money and the terms of the agreement are usually based on qualitative factors and the relationship between the two parties, rather than on a formulaic risk analysis.
Love money is usually given to entrepreneurs who have proved their responsibility to close family and friends over the years, but who fail to meet the the capital requirements that financial institutions look for in borrowers. An angel investor’s love money is sometimes the only way a business can get off the ground; this type of financing can allow for growth that would be impossible through traditional financing channels.