Understanding Honeycomb Investments
Updated: Sep 22, 2021
This blog post is intended to educate readers about the offerings available on Honeycomb Credit and nothing in this article is meant as investment advice.
Thanks for your interest in joining the #InvestLocal movement with Honeycomb Credit. Investing in small businesses can be an exciting way to diversify your investment portfolio, unlock new high-yield and fixed income streams, and simultaneously help a locally-owned business that makes our Main Street communities shine.
Deals available on Honeycomb share several key themes that make them appealing to investors:
Every small business must go through a detailed application and due diligence process prior to posting a campaign on the Honeycomb site. This application includes historical financials, debt schedules, business plans, and organizational documents. All of these documents are reviewed carefully by the Honeycomb team and are made available to potential investors through the campaign page and the accompanying Form C. A Form C is an investment prospectus that is filed with the Securities and Exchange Commission for every Regulation Crowdfunding investment opportunity such as the debt crowdfunding and revenue-share crowdfunding offerings found on Honeycomb.
In addition to the required materials found in the Form C, Honeycomb goes the extra mile and checks the personal credit, personal tax returns, and/or personal financial statements of the principal owners of the businesses listed on our platform. While there will always be significant risks from investing in small businesses, Honeycomb works hard to evaluate businesses prior to inviting them to the platform and to give you all of the information you need to make an informed investment decision.
Most of the investment opportunities listed on Honeycomb consist of fully amortizing Promissory Notes with a three to five-year term. These are simple debt instruments that, assuming the business pays as agreed, offer predictable, recurring income streams over the life of the loan. Businesses make monthly payments into a secure, third-party account which are then distributed to investors each quarter. Whatsmore, because Honeycomb is compensated through a posting fee, success fee, and small investor fee, every nickel of principal and interest is paid back to you, the investor.
Additional Honeycomb campaigns consist of Revenue Share Notes whereby a business pays a pre-agreed percentage of their monthly revenue to investors until a certain multiple is paid back. Revenue Share Notes typically offer greater annualized returns but less consistency on repayment streams.
Every deal listed on Honeycomb is slightly different with respect to the repayment terms, and all of the information you need to make an informed investment decision is included in the campaign page and accompanying Form C.
Typical Honeycomb debt offerings range from 6% to 14% annual interest rates. These are the interest rates paid by the business and, because all principal and interest payments go directly back to investors, these also represent the potential returns for investors.
Typical Honeycomb revenue-share offerings range from an investment multiple of 1.4x to 1.8x. Remember to review the Deal Summary on the campaign page or the Form C to understand the potential returns for each individual deal on Honeycomb.
Most Honeycomb campaigns include a collateral position in the issuing business, whether for a specific asset that is being purchased through the proceeds of the campaign (such as a new piece of equipment) or through a blanket lien position on all of the company’s assets. Additionally, many Honeycomb campaigns also include a personal guarantee from the business owners to offer further protections for investors.
Details about whether and what collateral or personal guarantees are available are outlined for each individual investment opportunity on the campaign page and in the Form C.
Perhaps the most unique aspect of investing in small businesses is that you can tangibly see your money at work in the community. Whether it is a brewery putting in a new canning line to broaden distribution, a restaurant opening a second location, or an artisan craftsperson hiring staff to expand production for e-commerce sales, each business has a unique story and a unique impact on their customers and communities. By investing in local businesses, you are democratizing access to capital and directly determining the future of the communities where you live, work, and play. I’d like to see a mutual fund do that!
Looking to get started? You can find all of the live offerings here.
Remember, investing in small businesses carries risk, and you should be prepared to lose part or all of your investment.