Would you rather invest in a local business that you know and love, instead of a large corporation? Would you like to help a local business weather the COVID-19 storm? How about if you could get a better return on that investment too? Sounds good right? In this SMBX review we’ll tell you how to do exactly that.
We’ll share all we’ve learned as we researched the investment opportunities with SMBX. In short, it’s a cool company with an important mission.
SMBX Review: Pros
- Investors get to “be the bank” and empower the businesses they care about
- Invest local – customers can become investors
- Liquid investment – enter and exit on demand
- Open to non accredited investors
SMBX Review: Cons
- New opportunities are posted irregularly
- Customer support is slow to respond
- New platform with minimal history
- Website: https://www.thesmbx.com
- Average returns: 6.5%
- Investment types: small business bonds, local business loans
- Based in San Francisco, CA
- Minimum investment: $10
- Non accredited investors welcome
Full SMBX Review
SMBX is a marketplace for buying small business financial securities. Instead of getting a bank loan, a small business owner raises capital from the public. Individual investors (every day people like you and me) provide the capital to the local businesses. The business pays them back with interest.
The small business bond is a new way for companies to raise capital. Previously a business had to ask the bank for a loan. Now, SMBX connects the business with the public directly and let’s customers and the community invest in companies they believe in. Consequently, no banks necessary. It’s easier for a business to raise funds this way (faster, less regulations, smaller fees). And it allows customers to engage with the company in a whole new way. Importantly, the business gets the free marketing that comes with a public capital raise. Bonus!
For investors, it’s great too. You can invest in businesses you care about. You can put your money where your values are. Where you shop, what you buy and how you invest has an impact. In the same vein, this is another way to make your dollar count. (Yes, I know how idealistic I sound. That’s just me.) You also earn interest on your investments with average returns being around 6.5%. Idealistic, yes. Smart strategy, yes.
How does SMBX work?
First, sign up on the SMBX website to create an account. Or download the handy app.
Secondly, find a business of interest. Check out the business’ details and get an idea of the company vision, goals, how they plan to reach them, etc.
Finally, when you find a business you want to invest in, reserve bonds at the lowest yield or bid in the auction for a higher yield. Think eBay style. There is a limited number of bonds and other investors can outbid you so plan accordingly.
When the auction closes, the last successful bid determines the effective rate of return. The bonds are filled at this rate. If you got the bond you receive principal and interest each month until the bond matures. If someone outbids you, try again next time.
At the close of the offering investors make payment for the bonds.
When you make a bid, your payment is held in escrow. At the close of the offering, the bond is officially purchased. If the bid is unsuccessful (or you cancel your bid), you are credited back through your SMBX Book (account). You can withdraw them whenever you like.
Bonds are delivered at the close of the offering.
You are paid principal plus interest each month for the duration of the bond repayment period. Funds are paid to your SMBX Book and you can reinvest or withdraw them as you please.
How do I get my money out?
SMBX offers a secondary market where investors can buy and sell Small Business Bonds.
What are the SMBX fees?
There are no fees to investors.
How does SMBX make money?
SMBX charges a 3.5% service fee of total capital raised, only fundraising is successful to the business. For example, if the business successfully raises $100k, SMBX charges $3,500 at close of the offer. They also have a $100 annual maintenance fee charged to the business until bond matures.
How do SMBX auctions work?
Think eBay “buy now” or join in the auction and make bids. During an auction, investors can buy immediately at the lowest yield or bid within a pre-set range of yields.
Auctions arrive at one offering yield. This is the figure at which the last available unit of bonds is sold. It’s the rate that investors will receive.
Here is an example SMBX gives to break it down:
Suppose ACME Co. wants to raise $1,000 by issuing bonds of its company. It will auction 100 $10 bonds within a range of 6%-8%.
Mr. Investor A bids for 40 bonds at 6.0%
Ms. Investor B bids for 40 bonds at 6.5%
Mrs. Investor C bids for 40 bonds at 7.0%
Dr. Investor D bids for 40 bonds at 7.5%
By logic of the auction: 40 bonds will be awarded to Mr. Investor A, 40 bonds will be awarded to Ms. Investor B; 20 bonds will be awarded to Mrs. Investor C to close out the offering; Dr. Investor D is the highest losing bid yield; therefore the market clearing yield (offering yield) is set at 7.0%, and Investor A, B, and C’s bonds will yield at the uniform price of 7.0%.
How does SMBX determine the range of yields for the business?
SMBX analyzes company information to understand the business’s ability to repay debt. In addition to studying the company’s business model and future goals, they also evaluate financial trends, customer and vendor reviews, management tenure and competitive landscape. SMBX also reviews debt service coverage ratio (does the company have enough income to pay it’s debts?), debt to equity ratio (what is the ability of share holder equity to cover all debts if the business experiences a downturn), and working capital ratio (does the company have enough short-term assets to pay off its short term debt?).
What are the risks?
Be sure to read the fine print for each deal because some bonds are secured and some are unsecured. As with other investments, there is risk. You may lose all the money you invest. So, plan accordingly.
How SMBX is Supporting Businesses During COVID-19
Lots of people have been finding ways to support their favorite local business through the pandemic and related shutdowns. Buying gift cards, donating via GoFundMe, and purchasing take-out or online delivery when possible, to name a few. Similarly, SMBX offers an additional means of support with their recently launched Small BusinesS Rebuild Bond Program. Businesses can raise up to $100k with no fees to help offset the impact of COVID-19.
It looks like they’ve helped two companies with this program so far. We are looking forward to seeing more. Learn more about it here:
Money Minx Take on SMBX
We like the innovative SMBX model, especially the idea that we can invest in businesses we know personally. With the ability to help through COVID, we are monitoring SMBX for new bond opportunities. We’ll let you know how it goes.
If you like what you read in our SMBX review, learn more here.