Mini-Bonds for Non Profit Organizations

There are mini bond programs available for non-profit organizations that can help provide immediate funding for projects and initiatives. These bonds are offered by governmental agencies that are local, state or federal. The bonds may offer tax-exempt income benefits for investors in order to attract investment dollars for the bonds.

About Mini Bonds

Generally mini bond issues act like municipal bonds in that they are sold on a local basis and only offer tax benefits to residents of the locality where the non-profit is located. Since a government or government agency underwrites the bonds, they are safe to the extent that they are backed by the full faith and credit of the taxing authority issuing the bonds. The safer the locality backing the bonds, the higher the bonds ratings. They are considered secured debt based on the agreement between the selling agency and the buyer or purchaser of the debt.

Mini Bond Uses

Mini bonds can be used to finance loans to a non-profit organization and are issued as either capital appreciation or interest bearing bonds. The type of debt instrument that constitutes a mini bond is of little concern to the non-profit organization receiving the debt proceeds except where it comes to the repayment terms and interest rate on the loan. The investor has the option of receiving tax-exempt interest income from the bonds based on the type of bond issue.

Capital Appreciation Mini Bonds

A capital appreciation mini bond that provides loan proceeds for a non-profit organization pays out at the bond's maturity. This type of bond can be considered similar to a zero-coupon bond that is issued at a discount or less than to its par value and appreciates to its full amount when it matures. As an example, a capital appreciation mini bond is sold for $900 and matures 10 years later at $1,000 would be issued at a 90 percent discount to its par value. The investor receives an income of $10 per year or $100 at maturity, which is the difference between the purchase price and the redemption or maturity amount.

Interest Bearing Mini Bonds

A current interest bearing mini bond is one that pays interest to the investor on a semi-annual or twice a year basis. Every 6 months, there is an interest payment, which is based on the stated coupon interest rate of the bond as a percentage of its par value, which is usually $1,000. In example, an interest bearing bond issued at 6 percent would pay semi-annual interest of $30 each 6 months until the bond matures.

Mini bonds provide a way for non-profit organizations to borrow at a lower rate and provide essential support services to a community as a benefit. Investors can take advantage of these bonds through the tax benefits derived. A local government agency can provide specific information about mini bond offerings in a particular area or community.