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Bonds increasing the interesting rate

By Crowdcube. 13th Nov 2015

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The bonds on Crowdcube enable our crowd of over 220,000 people the opportunity to invest in more established businesses. In return, investors are receiving regular interest payments at regular intervals until the end of the bond. If you invest in a bond you’ll get a fixed income over the life of the bond and at the end receive your principal investment is returned. For example:

How do bonds work?

Bonds give you the opportunity to back the businesses you believe in, support its growth and be part of the future success of that company. Previous companies raising finance through a Crowdcube Bond include The Eden Project, River Cottage and Chilango just to name a few.

You can lend to established businesses through a bond on Crowdcube and get a fixed-rate return on your investment, businesses have offered anything between 6-11% interest per year on your investment. At the end of the term, you will receive your investment back. So far, five companies have paid over £400,000 in interest to their Crowdcube investors. Your capital is still at risk; they are unsecured, non-convertible and whilst they may be transferable, liquidity is not guaranteed. Bond investments are not covered by the Financial Services Compensation Scheme.

How do bonds differ to equity?

Bonds are a debt based investment where you lend money to a company in return for a fixed income return. Whereas equity is purchasing a percentage or share of a business, usually in the form of shares.

This is an important distinction between the two types of investment. When you invest in exchange for equity, you become a part owner of the business and will share any dividend payments or profits from the sale of the company. By purchasing debt, in this case through a bond, you become a creditor to the company and get rewarded with regular interest payments.

What checks do you do?

All businesses issuing a bond on Crowdcube have been carefully vetted by our experienced in-house team of financial and credit analysts. This team of industry professionals have held senior roles at established financial institutions including KPMG, UBS, HSBC, E&Y, Citigroup, Deutsche Bank and RBS. Our team conducts extensive due diligence checks on the issuers, including an assessment of the company’s financial position and projections as well as its legal structure. This ensures that anything made available for investors is fair, clear and not misleading and that any factual claims made by businesses seeking to raise funds through our platform can be sufficiently verified.

The bonds team also use a third-party industry leading analytics tool, Moody’s RiskCalc, to generate a Probability of Default (POD) on existing credit obligations (not including the mini-bond on offer). This is an appropriate measure of creditworthiness before the bond was offered via Crowdcube and can help you understand the level of risk and potential reward.

Whilst POD is not a risk rating, it is an approximate measure of the creditworthiness of the issuer before the bond is issued. As such, it should be one of the factors considered by investors when assessing whether to invest or not.

The need for diversification when you invest

Diversification is an essential part of investing and refers to spreading your money across multiple investments and types of investments to reduce risk. Investors should only invest a proportion of their available investment funds via Crowdcube and should build a balanced investment portfolio. A study by Nesta revealed returns for angel investors across a diversified portfolio is 2.2 times the investment.

You have the opportunity to be part of future successes which have the potential to deliver financial returns and make a meaningful social, economic and environmental impact. If you would like to back businesses with a proven track record and support its growth, then visit the latest bond investment opportunities here.

Risk warning

Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdcube is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest via Crowdcube once you are registered as sufficiently sophisticated. Please click here to read the full Risk Warning.

Crowdcube is authorised and regulated by the Financial Conduct Authority (FCA) and the Comisión Nacional del Mercado de Valores (CNMV). This page has been approved by Crowdcube. Pitches for investment are not offers to the public and investments can only be made by members of crowdcube.com on the basis of information provided in the pitches by the companies concerned. Further restrictions and Crowdcube's limitation of liability are set out in the Investor Terms and Conditions.

Investment opportunities are not offers to the public and investors must be eligible Crowdcube members. Please seek independent advice as required as Crowdcube does not give investment or tax advice.