Disadvantages of Mini-Bond

A mini bond is an alternative finance means for small businesses. It was created to give small business finance an alternative to the corporate bond. Local, state and government programs are available in the amounts ranging from $100,000 to $2,000,000 dollars. The actual dollar amount will depend on the individual mini bond. Once these mini bonds are financed, the financial institution then packages them up similar to a trust and sells them on the stock market to investors. The bonds are sold in small amounts, usually around $25 dollars each.

Who Is The Lender?

One disadvantage of a mini bond can be that it is not always clear who the lender is. If an investor cannot research, or locate a financial institution, then the credibility of the mini bond is questioned.

This can be deemed detrimental because it is possible for companies to misrepresent, or hide details, in order to gain investors. Such was the case in 2008 with Lehman Brothers in Singapore. The company is said to have defrauded investors by misrepresenting that their mini bond was backed by five of their banks, when in fact it was not. Once the investors purchased the mini bonds, that debt actually became theirs to hold instead of the said banks. The company Lehman Brothers filed for bankruptcy that would in turn get rid of these debts to the investors. The matter is still in court.

Research your mini bonds before you pour your money into them. They are widely known as having a low financial risk to investors, but some unscrupulous companies are trying to find ways around the system that is supposed to benefit investors and small businesses alike.

Wait For How Long?

Another disadvantage is the extended period of maturity dates. These bonds a have a maturity date that is sometimes more than twenty years away. You will not receive any return on the investment until the bond matures. Many things can occur to both an economy, and a company, in twenty years. If something goes wrong, you have no way to pull that money out early without significant losses. Take the time investment into consideration as well as the monetary.

The most significant risks involved in mini bonds are the risks the investors take. If willing to do a little homework and take some time for your investment to mature than there seems to be little disadvantage at all.