SMBX Review: Invest in Small Business Bonds

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SMBX

This post is sponsored by SMBX.

If you prefer to buy from small businesses rather than large, publicly traded companies, investing in local small businesses may be a good fit for you. One of the easiest ways to do it is through SMBX, a relatively new crowdfunding platform.

What is SMBX?

SMBX is a bond marketplace that uses crowdfunding to provide capital to local small businesses. Business owners in need of funding can work with SMBX to issue bonds and reach potential investors. SMBX evaluates the creditworthiness of the borrower and if they’re approved, SMBX helps by marketing the bond on the platform. Some, but not all, of the bonds are secured by the borrower’s assets.

Investors can view available investment opportunities at thesmbx.com and invest as little as $10 to earn an interest rate of 4% to 9%.

While there are a number of alternative investment options for anyone who wants to add some diversity to their portfolio, SMBX stands out because of the social impact involved with supporting small businesses. If you have an interest in supporting small businesses while also earning some interest on your investment, SMBX is a platform you might want to consider.

What Are Bonds?

A bond is a loan paid back over a set period of time. The borrower issues bonds to raise money, with the promise of paying a set interest rate during the life of the bond. At the end of that set period of time, the bond becomes due and the borrower pays back the principal to the investor.

If you purchase business bonds like the ones available through SMBX, you’ll be paid interest each month during the life of the bond, and you’ll receive your original investment back when the bond becomes due. Of course, that assumes the borrowing business remains viable and is able to repay investors. While the interest rate is set, repayment is not guaranteed and there is a risk for the investor (like most investments).

How Does It Work?

Investors can view the available opportunities at thesmbx.com any time. Details of each offering include:

  • The interest rate (yield)
  • Bond duration
  • Minimum amount needed to be raised for the bond to take effect
  • Maximum amount to be raised
  • Details about the business and how the funds will be used
  • Bond prospectus and issuer financial information

Most of the bonds at SMBX have a 60-month duration, but some are only for 48 months. These investments are not liquid, as there is no way to cash out or sell your bond back to SMBX. As a result, it’s important to only invest money you won’t need at least for several years.

Although the range of interest rates is listed as 4% to 9%, most of the offerings are from 7% to 9%, based on the bonds currently open as well as the completed bond offerings listed on the SMBX website.

SMBX Bonds

Bonds are sold for $10 per bond and you can start with an investment as small as $10.

Anyone with a US-based bank account can invest through SMBX, you don’t need to be an accredited investor. If you see a bond you’d like to purchase, you’ll need to create an account with SMBX.

As part of my research for this article, I went through the process of creating an account and making an investment. The process is simple and takes just a few minutes. You’ll need to provide some basic personal details and link a bank account. SMBX uses Plaid, the most popular service for securely connecting to bank accounts. You’ll simply log in to your bank and you can purchase bonds in a matter of minutes. Alternatively, you can purchase bonds using a credit card. However, this isn’t advised because there’s a 4% fee for paying by credit card.

SMBX uses blockchain to track the investments. Users are able to login to the site at any time to view their portfolio. The user dashboard is very straightforward and makes it easy to see the bonds you own, interest earned, principal earned, and total earnings.

Investment Fees

One of the important details you’ll need to evaluate for any investment you’re considering involves the fees you’ll pay. Investment fees may seem small, but they can significantly cut into the long-term growth.

There are no fees related to buying bonds through SMBX. Borrowers are charged a fee to use SMBX’s platform to raise money, but investors will pay zero fees.

Pros of SMBX

Let’s take a look at some of the reasons why you might want to buy bonds through SMBX. 

  • Passive income. As an investor, you’ll be paid interest each month for the duration of the bond. If you’re looking for investment opportunities that generate cash flow, these small business bonds could be a good option.
  • Invest as little as $10. Many alternative investments have high minimum requirements that aren’t practical for the average investor. Through SMBX, anyone can get started with as little as $10.
  • Open to non-accredited investors. Anyone with a US-based bank account can invest. You don’t have to qualify as an accredited investor.
  • No investment fees. Avoiding investment fees is always positive, and there are no fees related to buying bonds at SMBX (unless you pay with a credit card, which isn’t recommended).
  • Support small businesses. One of the most important aspects of SMBX is the fact that it supports small businesses. This may be what attracts you to this opportunity over other possible investments. Each bond provides details about the business and the owners, so you can see that your investment will be impacting real people in a major way.
  • Ease of use. The process of buying bonds through SMBX is easy. You can create an account, link it to your bank account, and purchase bonds in just a few minutes.
  • User-friendly dashboard. Once you’ve invested, you’ll be able to view all of the relevant details in your personalized dashboard. You can check in on your investment at any time.

Cons of SMBX

Of course, any investment opportunity will have some cons as well.

  • Limited history. SMBX is relatively new and as a result, virtually no historical data on past bonds is available.
  • Not a liquid investment. When you purchase business bonds through SMBX, you won’t get your full investment back until the end of the bond’s duration. You’re locked into the investment for several years. This is not unusual for alternative investments, but it’s something you’ll need to consider.
  • Limited investment options. Right now, there are only a few offerings open to investors. As the platform grows, more options should become available, but for now, the selection is limited.
  • The level of vetting done by SMBX is unclear. In order for a bond offering to make it onto SMBX’s platform, SMBX verifies the creditworthiness of the borrower. However, few details are provided about this process and the level of vetting done by SMBX.

Who Is It For?

There’s a lot to like about the opportunity to buy business bonds through SMBX, but it does come with risk. In general, this platform is a good fit for investors who meet the following criteria:

  • Interested in supporting small businesses. If you like the idea of investing in small businesses and supporting business owners, you’ll appreciate SMBX.
  • Interested in generating passive income. These business bonds could be an ideal way to generate passive income since you’ll be paid interest each month.
  • Appetite for risk. Investing in small businesses comes with risk. SMBX is most ideal for investors who are able and willing to accept that risk.

Learn more at SMBX’s website.




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