Are Small Business Bond Marketplaces the New Crowdfunding?

A small business bond marketplace? Now that is a new one for us. But in an era of rapidly advancing technology and disruption, anything seems possible.

So in this vein, we tried to be receptive when we learned about a new San Francisco-based start-up called SMBX. The company helps small businesses raise capital from retail investors in their communities via the bond marketplace. 

SMBX has now raised $15 million to support this interesting and innovative initiative. We think Dovi Frances, founder of Group 11 and one of the company’s investors said it really well.

“Traditional banking as we’ve known it is coming to an end. Today’s fintech leaders are building an entirely new paradigm of financial products and services that are unrecognizable from legacy systems,” Frances said. “These new products must democratize lending to reach those who need it most.”

Crowdfunding 2.0

You can think of SMBX as a next-stage crowdfunding play. In 2021, the global crowdfunding market was valued at $12.27 billion. And it was forecast to double by 2027, growing at a compound annual growth rate (CAGR) of 11 percent.

One of the cool things about crowdfunding is the connection to local communities. Tomas Sluiter, owner of Culmination Brewing in Portland, OR (of course Portland since it is among the most innovative beer brewing communities in the country) said this about using small business bonds to capitalize his business. 

“By moving our debt service from banks to small business bonds, we allowed our friends, family and customers to invest directly in our success, earn interest and grow their wealth,” he said.

NerdWallet Drives Deeper into SMB Space with Fundera Acquisition

Culmination Brewing raised $400,000 at 8% on the SMBX platform to build a new canning line and buy new tanks to grow the business.

Try Finding This at a Bank

Qualified small businesses figure out how much they want to raise and the post that “offer” on the SMBX marketplace. Ideally a company’s most loyal customers then go onto the site and lend them money with an interest rate of up to 10%. Try finding that at a local bank. To illustrate, a $5,000 investment in an 8% bond maturing over seven years will pay more than $1,500 in interest. That works out to more than $77 per month in principle and interest.

Interestingly, the examples the company shared are food and beverage related companies. They include an ice cream chain that raised money to fund a new location, a vegan bakery wanting to expand their market nationally. And finally, a pop-up Salvadoran food company wanting to build a permanent location. 

We’re eager to see how things evolve for SMBX. And for both the businesses they help get new capital for and for the local investors. One can imagine this model growing considerably as more and more individuals shift out of corporate jobs and pursue their passions. Be it food, or fashion or flowers. Time will tell. We’ll try and keep our eyes and ears on how it’s all coming together.

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