Three key considerations:
- Bonds are a form of fixed term borrowing, typically used by larger established companies.
- Many new providers of bonds are available, and it may pay to shop around.
- Bonds can be a useful vehicle for financing organic growth. Alternatives might be a loan, leasing or hire-purchase agreement, or perhaps peer-to-peer (P2P) lending.
What are bonds and mini-bonds?
Bonds – retail bonds or corporate bonds – are a way for companies to borrow money from investors in return for regular interest payments.
Bonds have a predetermined ‘maturity’ date when the bond is redeemed and investors are repaid their original investment. A lender is tied in until the bond matures. Bonds can have an advantage over loans in that the business issuing the bond can have more control over the specific terms of the finance.
Traditionally, corporate bonds and retail bonds would be traded on the stock market and really would only be available to larger companies with a trading history. However, this is changing. Recently online platforms have entered the market, offering a one-stop-shop for raising finance through bonds. These platforms operate in a similar way to peer-to-peer lending platforms but offer more flexibility, and generally work with larger amounts of funding (usually £1m upwards).
Mini-bonds are similar but, crucially, they are not traded on a stock market and can only be promoted to certain types of investor. A lender is also tied in until they mature.
We recommend that if you are looking for a bond, you speak to your own bank or adviser, or visit the UK Finance website.
To explore the other finance options for your business, go back to the Finance Journey tool.