What Are Mini Bonds?

A mini bond is a popular investment vehicle that has recently caught the attention of a growing pool of casual and established investors across the UK.

How Do Mini Bonds Work?

In essence, a mini bond is similar in many ways to a conventional secured loan. Where a business needs to raise capital for a specific product or venture, a mini bond enables the company to borrow money from an investor at an agreed rate of interest.

Loan notes – aka IOUs or bonds – are issued to the investor, who subsequently receives regular interest payments for the duration of the loan agreement. When the bond matures – i.e., when the agreed loan period comes to an end – the amount of the loan borrowed in the first instance is repaid in full.

Are Mini Bonds Good Investment Options?

Mini bonds can be a good investment option in that they typically give access to much more competitive rates of interest than most comparable low-risk investment options. In addition, businesses often provide additional incentives for the investors who buy their mini bonds and finance their operations.

Examples of which may include early or exclusive access to certain products and services, or preferential treatment of some kind.

The predictability of mini bonds is a primary point of appeal for many investors. As the rate of interest agreed is fixed, you know exactly how much you stand to earn and when to expect payment accordingly.

Are Mini Bonds Risky?

Risk level varies in accordance with the terms and conditions of the agreement, the credibility of the bond issuer and their current financial position. If the issuer becomes insolvent and no form of security has been provided as collateral for the loan, the investor could lose some or all their money. However, this does not mean that mini bonds are riskier than other comparable investment opportunities. Quite the contrary, as the level of risk can be reduced to near zero by purchasing bonds exclusively from companies with an appropriately secure and predictable financial outlook.

Are Mini Bonds Regulated by the FCA?

For the time being, the Financial Conduct Authority does not regulate mini bonds or have any jurisdiction in their issue or purchase. This therefore means that inthe event of insolvency and subsequent losses, the investor has no entitlement whatsoever under the Financial Services Compensation Scheme.

More information can be found here from the Financial Conduct Authority.

Is it Possible to Trade Mini Bonds?

Unfortunately, there is no allowance for trading mini bonds on the stock market as would be your entitlement with retail bonds. This therefore means that even if the bond’s issuer begins showing signs of financial difficulties, there is typically no option for exiting the agreement early in the hope of reducing losses.

How Do Mini Bonds Differ from Retail or Corporate Bonds?

Retail bonds and corporate bonds are tradable assets, which can be bought and sold at any time, for any reason.

The difference with a mini bond is that it is a fixed investment that must be followed through to the agreed maturity date of the bond and cannot be traded in the normal way.

What Is A Property Mini Bond?

As the name suggests, a property mini bond is a specialist type of mini bond issued by a construction company or developer to finance a property development or construction project.

They are issued, purchased, and repaid in the same way as all other mini bonds, though some investors prefer to purchase property mini bonds exclusively due to the high predictability and reliability of the real estate market.

What Are The Advantages Of Mini Bonds?

A mini bond can be a high-yielding investment vehicle, capable of delivering a generous return on your investment with additional perks and privileges. They are also flexible, accessible and are currently more readily available than ever before.

What Are The Disadvantages Of Mini Bonds?

The biggest disadvantage of a mini bond is the risk of losing some or all your capital, if the issuing company declares insolvency. In addition, mini bonds are not regulated by the FCA and nor can they be traded or exited early if things take a turn for the worse financially.