Family businesses often face a dearth of long term capital from established financial institutions. In an effort to meet the growing need for capital many innovative financial products are being developed around the world by family businesses. Mini-bonds or crowdlending is one such product, fast gaining popularity in Europe.
Like conventional bonds, mini-bonds usually have fixed maturities of around three to five years, with investors receiving interest twice annually. They don’t face the same regulatory listing requirements as conventional bonds, so they’re easier to issue. But investors don’t get the same comprehensive information – or protections – on their investment. However, they are increasingly becoming popular due to their uniqueness as a fixed income investment, comparatively higher interest rates and fun added perks. They are non-tradable, hence for investors – the cash is locked in; while for issuers, this translates into retaining control.
In 2010, Hotel Chocolat, a British luxury chocolate chain, raised £4.2 million from mini bonds. Its returns included receiving a box of chocolates every two months. Last year it launched its second ‘chocolate bond’, offering annual returns of 7.25% in the form of in-store credit, or a monthly box of chocolates.
Earlier this year family-owned Scottish craft beer brewer Innis & Gunn, launched £3 million in mini-bonds to build a brewery. Their “BeerBond” aims to pay 7.25% interest each year, with investors’ initial investment returned on maturity after four years. Bondholders will also receive a 12.5% discount on online beer purchases.
Many other companies, including John Lewis, King of Shaves, Caxton FX, Ecotricity have also used this type of mini-bond finance raising, which connects customers with companies.
Source: CampdenFB (A%20capital%20idea_%20Funding%20the%20family%20enterprise%20_%20Campden%20FB.html)
