How to use Impact Investing to Support Local Small Businesses
Cherry Valley Organics is an organic farm making an impact on their environment and community! Find more businesses like their making a difference on Honeycomb.
Whether you’re new to investing or a seasoned pro, you might be wondering whether it’s possible to invest while also making a difference in the world around you. While you could donate to a charity, what if you could make an impact and receive a possible return from it?
This is basically the premise of impact investing. Impact investing is increasingly becoming popular with large, institutional investors, but it’s not impossible for small investors to get involved as well. Read on to learn more about impact investing, how you can do it, and how it can make a difference to your Main Street.
*Disclaimer: this is not intended as investment advice and should be considered for educational purposes only.
What is impact investing and how can I get involved with it?
The goal of impact investing is to profit while also achieving social and environmental goals. Essentially, you get to pick causes you believe in, find businesses that support those causes, and potentially receive a return on your investment in them. This is all with the objective of integrating social change with financial gain.
Other terms for impact investing include sustainable investing, socially responsible investing (SRI), and environmental, social, and governance investing (ESG). These acronyms may seem intimidating, or really meant only for large investors. And while it’s true that most impact investing is done by institutional investors, there are many opportunities for individual investors to make an impact through their investment, thanks to legislation such as the JOBS Act.
The JOBS (Jumpstart Our Business Startups) Act made it possible for unaccredited investors to invest in small businesses, and paved the way for Regulation Crowdfunding. Reg CF is one of the most accessible means of investing for individual investors, and therefore is a great way of getting involved in impact investing!
The average return on impact investing
Honeycomb campaigns are a great way of making an impact while also making a potentially greater return on your investment over impact investing in stocks.
The average return on an impact fund when you invest in a traditional sense is 6.4%, compared to the 7.4% internal rate of return from a non-impact fund. This may or may not seem like a significant difference to you as an investor, but ultimately depends on how you consider the impact you’re making intangibly contributes to your goals in making a social impact.
Now, compare this to an investment in a small business that’s making an impact on Honeycomb Credit. Interest rates on Honeycomb’s small business loans range from 5-12%, depending on the risk involved in the investment. So, you can find a business with an impactful mission that aligns with yours, and potentially make a better-than-average return on your investment, just by investing in a small business.
Empowering Main Street through Impact Investment
One of the cool things about investing in local small businesses is that you get to tangibly see the outcomes of your impact investments. While you can contribute to large corporations that are incorporating sustainability or social impact into their operations, you don’t often get to see that in action.
However, if you invest in a local small business, you’ve got a street-level view of the impact they’re making on your community. Also, small businesses make an impact in so many different ways, so you can have your pick of causes to invest in.
For example, there are tech companies like Harvie that are contributing to building up local food systems. Harvie provides an easy platform that connects consumers with small, local farms in CSAs. In 2021, Harvie raised $236,535 to scale up their distribution, connecting more small farmers to consumers hungry to support them!
There’s also small businesses that are creating a postive environmental impact on a more micro-level - such as zero-waste refill shops such as Prostainable and Little Spark Refill Shop. Both of these businesses - Prostainable based out of California and Little Spark out of Ohio, raised money through Honeycomb to open up new locations of their popular refill shops! These businesses are diverting plastic from landfills every day, and you can see their impact with every bottle refilled in the shop.
Impact investing can also take a social lens, and you can invest in businesses that give back to their communities that incorporate causes they believe in into their business models. For example, soap company Pip & Lola’s in Pittsburgh donates a bar of soap to domestic violence shelters for every two bars bought.
You can also incorporate impact investing into supporting minority-owned businesses in your community. Minority-owned businesses often have many hurdles to overcome, especially when it comes to accessing financing for their businesses. Your investment can have an even greater impact in this regard! At Honeycomb, 24% of our campaigns have been run by minority-owned businesses.
Elements of Impact Investing
To reiterate, the main benefit of impact investing is that it involves a financial return with a social impact. You don’t need to separate your do-good heart from your financial profit!
Your first step is to take a personal inventory and set standards and metrics associated with the impact you wish to make. What values matter to you? How do you want to see this impact being made in the world by businesses you invest in? Ultimately, it’s up to you to set where you as an investor lie in the spectrum between finance and impact.
With that in mind, there are various kinds of impact investing that you can get involved with: fixed income loans, venture capital, private equity. However, one of the most accessible means of getting involved in impact investing can be crowdfunding through regulated platforms like Honeycomb.
Ready to make an impact with your investment?
Browse live Honeycomb campaigns today to see if there’s a small business out there that aligns with your values that you can potentially invest in!