Why We Created the Small Business Bond
A message from the CEO
Hello.
My name is Ben Lozano, I’m CEO of SMBX.
I’d like to say a few words about what we’re building together with you, our clients.
What We’re Building
At SMBX we’re building the world’s first Small Business Bond™ marketplace.1
Some may think the term “Small Business Bond” is just a clever marketing concept for a loan that’s issued on our marketplace.
But it’s more than that. It's about giving local businesses a powerful financial tool traditionally reserved for corporate giants. For just as Coca Cola, Apple, John Deere and other large corporations can sell Bonds to people who want to invest in them, the Small Business Bond now allows US small and medium businesses to do the same.
What We Are
SMBX is a Small Business Bond marketplace, where qualified small and medium businesses raise loan funds from their customers, community and other people who want to invest in them.
And the people who invest in them earn fixed, monthly payments of principal and interest.
What We Do
We want the Small Business Bond to become a new-era, scaleable, capital markets asset class. But well-functioning capital markets need financial service providers to support the activities taking place therein.
So yes, we are a marketplace. But we also provide our clients –both businesses issuing Bonds and investors buying Bonds– the financial services and technologies that allow them to sell and buy Bonds, and perform all the other related activities that take place on our marketplace.
What This Means
The result is that for the first time in the history of American finance, small and medium businesses have a new loan financing option –yes, they can still take out a private bank loan, but they can also now issue a public Bond on our marketplace. And also for the first time, people can now directly invest in Bonds issued by small and medium businesses in their communities, and share in the financing profits as these businesses grow and thrive.2
What We’ve Done So Far
We’re still a young company.
On the supply side, we’ve listed 230 Businesses worth just over $35M. Not all the Bonds have filled. And a few have defaulted. But overall our Bonds have returned nearly $9.5M worth of payments to investors, to date.
On the demand side, we have 6K retail clients who have purchased Bonds. And we’ve also recently seen a few smaller financial institutions trickle onto our marketplace and begin buying Bonds.
What Is Our Goal
Our goal is to build a new era small business capital marketplace.
Why is it Our Goal
We’re doing this because we believe people want power over their money.
Our 3 Core SMBX Principles follow from this belief:
Principle #1. Give people the ability to invest in the kind of world they want to live in.
Although our marketplace is still relatively small, we offer a wide variety of Offerings listed by businesses across geographies (e.g. the Bay Area CA, Madison WI, Cumberland MD), industries (e.g. restaurants, health & wellness, CPG, etc.), and other segments (e.g. vegan, women-owned, Asian-owned, etc.).
In this way, people can decide for themselves what types of businesses they want to invest in, and then share in the financing profits when those businesses pay back their Bonds, grow, and thrive.
Principle #2. Make investing in small businesses easy.
Our financial services team and technology stack coordinate all Bond purchase orders for live Offerings, all the settlement and reconciliation of these orders when the Offerings close, all the recordkeeping throughout the lives of the Bonds, and of course all the money flows that take place along the way.
This way, our investor-clients can spend their time deciding what Bonds to buy, and therefore what kind of world they want to support with their investments.
Principle #3. Make investing in small businesses profitable.3
To be clear, we cannot say, and are not saying, that investing in Small Business Bonds is safe or certain to be profitable.
In fact, we should clarify that federal regulations require that we inform you:
All statements made here should not be construed as promissory. There is no guarantee that businesses issuing Bonds on the SMBX will survive or partially or fully service their Bonds. There is no guarantee that principal and interest will be made. Investing in Small Business Bonds involves financial risks, including loss of money invested.
However, as a principle, we believe it’s possible for us to perform certain activities that make investing in small businesses a safer, more viable, and legitimate investment opportunity –and that as financial service providers we should strive to do so.
Two things immediately stand out:
i. Competent Underwriting Standards.
Even before we approve a business to list a Bond Offering, our underwriting team evaluates the most recent financial statements of the business, including their tax returns, to assess the financial health of the business applying to list an Offering.
We also evaluate other non-financial metrics as well. And we run background checks on the business owners, as well as other due diligence processes.
As a result, we turn away more businesses than we approve to list Bonds on SMBX.
ii. Diversification & Our Concept of the Small Business Bond Series.
Portfolio diversification theory states that spreading your investments across different industries, geographies, or other segments will reduce your overall risk, by reducing the negative impact of any single investment's poor performance.
At SMBX we strongly believe in the importance of diversification, especially when investing in small and medium businesses –and as a result, we organize our Offerings under different Bond Series.
For example:
The US Small Business Bond Index.
Our highest level of Bond Series is our US Small Business Bond Index, which is an index of all Bonds that have ever been issued on SMBX.
Our hope is that one day we can achieve the size and scale of our marketplace, such that people can get up in the morning, turn on the news, and check the US Small Business Bond Index to gauge the borrowing health of small businesses in the United States.
Other Bond Series.
But we also recognize that different people may want to “gain exposure” to specific small business geographies, industries, or other segmented affiliations, based on their own decision making –which is also consistent with our Principle #1, above.
As a result, we currently have 50 different Bond Series –from The Michelin Guide Bond Series, to The Women-Owned Bond Series, and The Bay Area CA Bond Series, etc. In future posts we will be writing more about this.
What’s Next
We’re just getting going, but we’ve got some new things coming out that we need your help scaling.
Referral Program.
We launched an Issuer Referral Program, which pays $500 to any person who refers a small business that eventually lists a Bond on our marketplace.4 This is consistent with Principle #1(Give people the ability to invest in the kind of world they want to live in), as well as our belief that the wealth created by financial activity should circulate back through the communities that produce it.
Gift Bond Program.
We just launched our Gift Bond Program, which allows SMBX clients to purchase and give Bonds to their family and friends.5 This is consistent with Principle #2 (Make investing in small businesses easy), as well as our belief in the power of compounding interest: after all, why give your 18-year old kid $1000 for their birthday when you can give them $1000 worth of Gift Bonds that will pay them principal and interest monthly for the next 4 or 5 years?6
New Product Features & Educational Materials.
We’re also working on new product features, such as a search function for different Bond Series, to better allow our clients to find businesses that fit the geographical area, industry, or segment they want to invest in.
And we’re working on new educational materials, such as information graphs that track and benchmark the performance of various Small Business Bond Series against other capital markets comparables.
One of the main reasons we’re working on information graphs: while overall Bond repayment performance has remained strong, when there are repayment delinquencies or even defaults, our clients have expressed their interest to better understand the impact on their overall investment return.
We acknowledge that our investors want transparency about delinquencies and its impact on their investment return, and we will strive to continue to get better at providing this.
What We Need
So as we head deeper into 2025, we invite you to continue to participate in the new era small business capital market we’re building together.
Invest in new Bonds, refer a great local business, or gift some Bonds to someone you love.
We created the Small Business Bond because we believe that people want power over their money. It’s time for us to take control of our money, and invest in the kind of world we want to live in together!
Ben
2Statements made here should not be construed as promissory. There is no guarantee that businesses issuing Bonds on the SMBX will survive or partially or fully service their Bonds. There is no guarantee that principal and interest will be made, such as in cases of nonperformance, missed payments, or default. An investment in a small and medium business or startup involves significant risks, only some of which are described here, and is suitable only for investors who have limited need for liquidity in their investment, who can afford the potential loss of their investment and who otherwise meet the conditions for eligibility set forth in the SMBX terms of service.
3Statements made here should not be construed as promissory. There is no guarantee that businesses issuing Bonds on the SMBX will survive or partially or fully service their Bonds. There is no guarantee that principal and interest will be made, such as in cases of nonperformance, missed payments, or default. An investment in a small and medium business or startup involves significant risks, only some of which are described here, and is suitable only for investors who have limited need for liquidity in their investment, who can afford the potential loss of their investment and who otherwise meet the conditions for eligibility set forth in the SMBX terms of service.
4The T&C of the Referral Program can be found here.
5The T&C of the Gift Bond Program can be found here.
6There is no guarantee that principal and interest will be made, such as in cases of nonperformance, missed payments, or default.