SME Bonds are an alternative source of financing for small to medium sized enterprises from startups & early-stage to the more established SMEs.
An SME (startup) Bond is a hybrid debt/equity instrument that provides a straightforward and cost-effective way for a startup or early-stage company to source the seed funding needed to cover the initial expenses involved in an equity crowdfunding campaign (or for any other legitimate business purpose).
Since the SME Bond acts as a debt instrument before conversion, it can include an interest rate. However instead of paying out cash, the SME pays the investor in shares once the bond converts.
These ‘SME startup bonds’ are usually negotiated by private treaty, one-on-one between the entrepreneur and an early adopter or supporter with often no more than a single bond certificate issued.
An issue of SME Bonds provides a way for more established businesses with strong cash flow to obtain debt finance, using stock or other assets as collateral, without watering down the existing investors in the company.
Investors receive regular interest payments until the end of the SME Bond term and receive their initial investment back at the end as well.
Depending on the bond’s terms & conditions, if the company undertakes an equity capital raise, it may be converted into equity (at the investor’s option) which extinguishes any obligation for the SME to pay back the loan.
Click here to see if you qualify to sell or buy an SME Bond.