Community Investing: Invest in Local Business in 2021


There are now more opportunities than ever to invest with impact, and funds and stocks aren’t your only option. You can direct your money to help communities, small businesses, or individuals. Read more to learn about community investing.

SustainFi Updated October 19, 2021

community-investing

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You may already be supporting your local community. For example, during COVID, many consumers have chosen to support local restaurants and small businesses. But you can also direct your savings to make an impact.

What is community investing?

Community investing involves giving capital to low-income and underserved communities to provide money and training that would otherwise be lacking. Community investing can help small businesses succeed and let individuals become homeowners. This sustainable investing strategy has the potential to change millions of lives in the U.S. and abroad.

You can invest in the community by:

  • Lending to Community Development Financial Institutions (CDFIs) through online platforms like CNote and Calvert Impact Capital
  • Buying mutual funds that invest in debt funding community development
  • Investing in real estate in poor areas
  • Investing in or lending to small business
  • Helping your peers through peer-to-peer lending platforms

1. Community Development Financial Institutions (CDFIs)

How to support local communities by lending to CDFIs

Traditional banks were reluctant to lend to businesses and residents in low-income areas in the past, prompting the creation of CDFIs in the 1970s to address this issue.

Today there are over 1,100 of CDFIs in the U.S. CDFIs are government-accredited banks and credit unions that lend to small businesses and provide housing loans to those who can’t get traditional loans. They are deeply embedded in their communities.

CDFIs use government funds and donations to fund loans and provide education and training. During the Covid pandemic, CDFIs stepped in to help minority-owned companies that couldn’t get federal aid fast enough.

To be an accredited CDFI, a bank or credit union must give at least 60% of loans to low-income individuals or communities. According to the Opportunity Finance Network, 85% of CDFI clients are low-income, and nearly 60% are people of color.

Lending to CDFIs lets you direct your money to places where traditional financial institutions won’t invest. Several CDFIs allow you to invest directly, but it’s often challenging to do all the paperwork, and minimum investments can be high. It’s easier to invest in several CDFIs at once through platforms like Calvert Impact Capital or CNote.

Where do CDFIs fit into your portfolio?

CDFI investments generally fit into the bond allocation of your investment portfolio. Longer-term investments typically carry higher returns. You can earn up to 2.5% depending on the platform and for how long you choose to invest. However, most platforms won’t let you get the money back before the maturity you select.

Although we won’t cover equity investments here, you can also buy publicly traded CDFI stocks such as Amalgamated Bank (AMAL) and Oportun (OPRT).

Community Investment Options

You can invest in CDFIs through online platforms like CNote and Calvert Impact Capital. You can also buy bonds that fund community projects through mutual funds like CRATX and ACASX.

💰 Our pick

Our top pick is the Calvert Impact Capital Community Investment Note. Calvert Impact Capital has a 25-year track record of investing in CDFIs. We also like CNote, a new fintech platform offering an easy way to help CDFIs.

InvestmentSustainFi RatingMinimum InvestmentFeesInterestMaturity
Calvert Impact Capital Community Investment Note4.6$20$00.4%-2.5%1-10 years
Capital Impact Partners4.0$1,000$0Varies1-15 years
CNote Flagship Fund4.5$1$02.0%30 months
Reinvestment Fund4.2$1,000$01.0%-2.5%
3-15 years
RSF Social Investment Fund Note
4.2$1,000$00.25%
90 days
CCM Community Impact Bond Fund (CRATX)3.3$2,5000.80%NANA
Access Capital Community Investment Fund (ACASX)3.3$2,5000.81%NANA

As of 10/19/2021

Calvert Impact Capital Community Investment Note

Annual Fee$0
Minimum Investment $20
Returns 0.4% – 2.5%
Maturity1 – 10 years
SustainFi Rating4.6 / 5

Summary

  • Invest in CDFIs with as little as $20
  • Certification: 501(c)(3) nonprofit
  • Liquidity: none until maturity
  • Open to non-accredited investors

Pros

  • Supports an impact investing nonprofit
  • Low minimum investment
  • Investments in CDFIs are generally safe (though they are not FDIC-insured)
  • Uncorrelated with the broader market
  • You can target a specific impact sector
  • No fees
  • Diversification benefits – your money is invested in pools of loans from different CDFIs

Cons

  • You can’t get your money back until the Note matures
  • Low rate of return

Review

The Calvert Impact Capital Community Investment Note lets you invest in communities with as little as $20. Calvert Impact Capital gives your money to CDFIs and microfinance institutions that, in turn, lend it to small businesses, sustainable agriculture programs, or affordable housing projects.

Calvert Impact Capital’s team does diligence on their CDFI partners. The fund has invested over $2 billion over its 25-year history, repaying 100% of the investment with interest. Currently, Calvert Impact Capital has half a billion invested in over 100 institutions. About a third of assets are invested internationally.

The Note targets nine impact sectors, including affordable housing, community development, environmental sustainability, small businesses, microfinance, health, renewable energy, education, and sustainable agriculture. You can designate a specific sector when you invest.

Calvert Impact Capital publishes an annual impact report. The businesses they support include eco.business Fund, an impact fund conserving biodiversity in Latin America, and the Forest Resilience Fund, which aims to restore forests in California to reduce wildfire risks.

You can select for how long you want to invest; the Note currently offers a 0.4%-2.5% return for a term of one to ten years:

  • 1 Year: 0.40%
  • 3 Year: 1.00%
  • 5 Year: 1.50%
  • 10 Year: 2.50%

There are no charges or hidden fees though you can’t get your money back until the Note matures. You can buy the Note online or through a brokerage account. You can also invest through an IRA.

Note that Calvert Impact Capital is not the same as Calvert Research & Management, an ESG mutual fund provider.

💰 Takeaway

This is the best community investment option – Calvert Impact Capital has a long track record of investing in CDFIs and returning the money to investors. The Calvert Impact Capital Note could replace some of the bond investments in your portfolio, given its low correlation with stocks. However, returns are currently low, especially for shorter-term investments.

🔔 Read the full review of Calvert Impact Capital.

Capital Impact Partners

Annual Fee$0
Minimum Investment $1,000
Returns0.40% (2-year maturity)
Maturity1 – 15 years
SustainFi Rating4.0 / 5

Summary

  • Invest in CDFIs with as little as $1
  • Open to non-accredited investors

Pros

  • Supports CDFIs
  • No fees
  • Investments in CDFIs are generally safe though they are not FDIC-insured
  • Diversification benefits – your money is invested in pools of loans from different CDFIs

Cons

  • No liquidity until maturity
  • Low interest
  • Investments are not FDIC-insured (though CDFIs rely on government funding)

Review

Capital Impact Partners (“Capital Impact”) is a community development financial institution (CDFI) with a 38-year history. This District of Columbia-based nonprofit was formed in 1982 to provide financial services and assistance to underserved communities throughout the U.S.

Capital Impact also runs several community development programs, including the Healthier California Fund, Detroit Neighborhoods Fund, Age Strong Fund, National Cooperative Grocers Fund, and Michigan Good Food Fund.

Throughout Capital Impact’s history, the nonprofit has deployed over $2.7 billion across the U.S. Its portfolio of loans currently exceeds $700 million.

Although Capital Impact invests nationally, they try to cluster investments in places they know best and leverage local relationships. As part of that effort, they are focused on specific regions, such as California, Michigan and northwest Ohio, the New York Tri-State Area, Texas, and the Washington, D.C. Metro area.

Capital Impact continues to offer new Notes. You can check the latest terms on their site before you invest.

The Notes are offered with 1, 3, 5, 7, 10, or 15-year maturities. You can’t get your money back before the stated maturity.

The annual interest varies. The latest Notes Capital Impact issued matured in 2022 (two-year maturity) and paid a 0.40% annual interest. The minimum investment is $1,000.

You can buy the Notes directly through your brokerage account. You will need to call the broker, however, because you can’t just buy the Notes online like a stock. The Notes are offered to residents of most U.S. states except for Washington and Arkansas.

💰 Takeaway

Investing in the Capital Impact Investment Notes is a good way of supporting underserved communities, but, given the low interest, you won’t generate substantial returns.

🔔 Read the full review of Capital Impact Partners.

CNote Flagship Fund

Annual Fee$0
Minimum Investment $1
Returns2.0%
Maturity30 months
SustainFi Rating4.5 / 5

Summary

  • Invest in CDFIs with as little as $1
  • Certification: B Corp
  • Women-led investment platform
  • Liquidity: you can withdraw the greater of 10% of your investment and $20,000 every quarter
  • Open to non-accredited investors

Pros

  • Supports CDFIs and a women-led socially conscious business
  • Low minimum investment
  • No fees
  • Quarterly liquidity
  • Investments in CDFIs are generally safe though they are not FDIC-insured
  • Diversification benefits – your money is invested in pools of loans from different CDFIs

Cons

  • Limitation on how much money you can withdraw quarterly
  • CNote is an early-stage startup
  • Investments are not FDIC-insured (though CDFIs rely on government funding)

Review

CNote is a women-led impact investment platform that lends your money to CDFIs which fund small businesses and help build affordable housing. According to the Opportunity Finance Network, less than 5% of CDFI funding comes from individual investors. There is a big shortfall between demand for CDFI loans from low-income people and small businesses and how much investment CDFIs get. CNote was founded to help close that gap.

CNote is a registered B Corp, promising to balance purpose and profit. The company is legally required to consider its impact on workers, customers, suppliers, the community, and the environment.

The CNote team looks for CDFIs to lend to, prioritizing CDFIs with long track records and a history of no losses. They developed a CDFI-specific proprietary risk model that emphasizes diversification.

CNote’s Flagship Fund, which is available to non-accredited investors, currently pays 2% annually over a 30-month term. There are no fees to investors. The fund publishes quarterly impact metrics, like the number of jobs they help create. You can withdraw cash every quarter for up to 10% of your investment or $20,000, whichever is greater. The product is designed to be a bond fund alternative.

You can start investing in the Flagship Fund with as little as $1. CNote also has other funds with higher minimums for accredited investors.

CNote was founded by two women, Catherine Berman and Yuliya Tarasava. The duo built successful careers in finance but wanted to give back and expand access to credit for women and minorities. They launched CNote in 2016 with $10 million and backing from Y Combinator, the well-known startup incubator. The fund has since invested over $40 million along 26 impact themes such as racial justice, climate crisis, and gender equality. CNote doesn’t charge fees, making money on the spread between the interest they receive from lending to CDFI partners and the interest they pay investors.

CNote is not required to register with the SEC or FINRA as an investment advisor, but they do file annual reports. According to its financial filings, CNote is an early-stage startup that “has not generated significant revenues from principal operations and has not yet proved the viability of its business model.” The company relies on equity capital from investors to sustain operations. However, CDFIs that CNote lends to rely on government funds and are generally safe investments. CDFIs must repay the loans even if the individuals and small businesses who borrow from CDFIs do not pay them back.

💰 Takeaway

We like CNote’s social mission, and a 2% return is more than the return on the money in your savings account. However, you should not invest a material percentage of your assets – CNote is an early-stage startup, and investments are unsecured and not FDIC-insured.

🔔 Read the full review of CNote.

Reinvestment Fund Promissory Note

Annual Fee$0
Minimum Investment $1,000
Returns1.0% – 2.5%
Maturity3-15 years
SustainFi Rating4.2 / 5

Summary

  • Invest in a CDFI directly
  • Certification: 501(c)(3) nonprofit, CDFI
  • Liquidity: None until maturity (although the company has historically chosen to honor early redemption requests)
  • Open to non-accredited investors in 17 states: PA, MD, DC, NJ, VA, GA, CT, HI, IL, IA, ME, MA, MS, NM, RI, SD, and TX

Pros

  • Supports a nonprofit CDFI directly
  • Reinvestment Fund has a 35-year history of repaying 100% of principal plus interest to investors
  • No fees
  • Investing in CDFIs is generally safe (though your money is not insured by the government)

Cons

  • You can’t invest online: you need to download and print out a form, include a check, and mail it
  • Your money is not FDIC-insured
  • No way to get your money back until the Note matures (the earliest maturity is three years)
  • Only available in select states
  • No diversification across CDFIs (you invest in just one CDFI)

Review

Instead of investing in platforms that give loans to CDFIs, you can bypass the middlemen and invest in a CDFI directly.

Based in Philadelphia, Reinvestment Fund is a nonprofit CDFI whose mission is to ensure that everyone has access to essential opportunities. Since 1985, Reinvestment Fund has invested over $2.4 billion in communities, housing, and social enterprises. The Promissory Notes program has repaid 100% of principal plus interest to investors since inception.

You can start investing with $1,000, and you don’t have to be an accredited investor. Your money will be invested in a diversified loan fund with over 830 other investors. The loan fund has funded community projects like ACE Energy, a developer of energy efficiency improvements for low-income housing.

Current interest rates are:

  • 3-4 Years: 1.00%
  • 5-6 Years: 1.50%
  • 7-9 Years: 1.75%
  • 10-14 Years: 2.50%
  • 15 Years: 2.50%

You can also elect to receive less than the specified rates or just donate.

To invest, you need to fill out a form and mail it along with a check and a copy of your ID. The process is not as easy as with CNote. Also, there is no way to get your money back before the maturity you elect.

Reinvestment Fund accepts investments from investors in 17 states: PA, MD, DC, NJ, VA, GA, CT, HI, IL, IA, ME, MA, MS, NM, RI, SD, and TX.

💰 Takeaway

Buying Reinvestment Fund promissory notes is a great way to support a nonprofit CDFI with a 35-year track record. However, you are investing in just one CDFI, which is riskier than investing in a pool of CDFIs.

RSF Social Investment Fund Note

Annual Fee$0
Minimum Investment $1,000
Returns0.25%
Maturity90 days
SustainFi Rating4.2 / 5

Summary

  • Invest in a nonprofit helping communities
  • Certification: 501(c)(3) nonprofit (RSF Social Finance is not a CDFI, though it has similar aims)
  • Liquidity: after 90 days
  • Open to non-accredited investors in all states except Washington
  • IRA investments available

Pros

  • Supports a nonprofit directly
  • The fund repaid 100% of principal to investors during its 35+ year history
  • No fees
  • IRA option
  • You can get your money back after 90 days

Cons

  • Returns comparable to a bank certificate of deposit
  • Your money is not FDIC-insured

Review

Inspired by the ideas of the 20th-century Austrian philosopher Rudolf Steiner, RSF is a nonprofit that aims to advance Steiner’s idea that money should connect and strengthen communities. Since 1984, RSF has made over $150 million in loans and over $65 million in grants, targeting nonprofit and for-profit social ventures. A sample investment is Veritable Vegetable, a women-owned B Corp that distributes organic produce.

You can support RSF’s work by investing in a 90-day fixed income Note that pays 0.25% annualized interest. If you don’t redeem the Note after 90 days, it will roll over automatically.

While the Note is not FDIC-insured, the fund has repaid 100% of principal to investors since it made its first loan in 1984. The Note has a minimum investment of $1,000 and can be purchased online. There is an IRA option too.

The Note has over 1,600 investors (with an average investment of $50,000) and around 100 investments.

💰 Takeaway

The Note is a good way to support RSF’s work while earning returns similar to a bank certificate of deposit. As with the Reinvestment Fund, you are lending to a single institution and not a pool of CDFIs (which you can get with CNote or Calvert Impact Capital.)

CCM Community Impact Bond Fund (CRATX)

Annual Fee0.80%
Minimum Investment $2,500
SustainFi Rating3.3 / 5

Summary

  • CRATX is a mutual fund that invests in communities
  • Liquidity: you can sell the mutual fund at any time through your broker
  • CRATX is available through online brokerages and financial advisors

Pros

  • Investments support underserved communities
  • Investments are transparent and publicly disclosed
  • Sell at any time
  • Fossil free

Cons

  • High expense ratio
  • Returns are not guaranteed
  • Your money is not FDIC-insured

Review

Community Capital Management offers an actively managed bond mutual fund, the CCM Community Impact Bond Fund (CRATX) (formerly known as the CRA Qualified Investment Fund). The fund was launched in 1999 to invest in underserved communities. Today it’s a big fund with $3.3 billion in assets under management.

The fund invests in over 1,700 fossil free high-quality bonds that back community development projects. Most bonds qualify under the Community Reinvestment Act (CRA) of 1977. (The Act is a federal law requiring banks to help borrowers in low-income neighborhoods.)

CRATX invests in 18 impact themes, including affordable housing and minority advancement. In 2020, Community Capital launched the Minority Cares initiative. New individual investments will benefit minority businesses, education, and affordable housing.

CRATX is a mutual fund, so it’s easy to buy and sell through your brokerage account. Unlike some of the impact investing notes, you are not locked in for a specific term. You also don’t need to sign up for any special platform or mail in an application. Investments are transparent and publicly disclosed.

On the negative side, the fund charges retail investors 0.8% annually, which is high even for a mutual fund. CRATX returned 4.1% in 2020 and around 3% since 1997, but future returns will depend on how the fund’s investments do and are not guaranteed.

💰 Takeaway

The fund has a social mission, but it charges very high fees, and performance is not guaranteed.

Make an impact with your money

Build custom ESG portfolios for free

Fees

$0

$125 for M1 Plus

Minimum

$100

Open a green bank account

Fees

Pay what you want

Minimum

$0

Save your change and invest in ESG portfolios

Fees

$3-$5

/month

Minimum

$5

2. Real estate impact investing

Investing in real estate is a good way of diversifying your portfolio. Yet, most real estate crowdfunding platforms don’t seek to make an impact or take social goals into account.

Small Change, a socially responsible real estate investing platform, is different. Its purpose is to help you invest in projects in neglected communities.

Side note: crowdfunded real estate investments are very risky, so only invest a small percentage of your assets.

Small Change

Annual Fee$0
Minimum Investment$250+; varies by project
ReturnsVaries; current projects offer 2-8.5% return
MaturityVaries; current projects offer 3-8 year terms

Summary

  • Small Change is a real estate crowdfunding platform that targets affordable housing
  • Open to accredited and non-accredited investors (some projects are only available to accredited investors)
  • Account types: taxable accounts and IRAs
  • Liquidity: none, you won’t get your money back until the end of the term. There is no secondary market

Pros

  • Supports affordable housing projects
  • Low minimum investment for a real estate platform
  • Open to non-accredited investors
  • No fees to investors
  • IRA option

Cons

  • Lack of diversification. You invest in one project at a time, which is riskier than investing in a pool of assets. (There is no option to invest in a pool of assets)
  • Small Change is an early-stage startup with a limited track record
  • You can’t get your money back until the term expires
  • Few available projects to invest in

Review

Small Change is a socially responsible real estate investment platform. The founder, Pittsburgh-based Eve Picker, is an architect and real estate developer with a passion for transforming cities.
Small Change vets affordable housing projects in neglected communities and lets you invest. They promise to only list projects that can improve their community and currently offer several investments in affordable housing developments.

Most projects on the platform are open to non-accredited and accredited investors (some are for accredited investors only.) Once you invest, your money is put into an escrow account until the fundraising goal is reached. Then the money is sent to the project developer. If the fundraising goal is not reached, you get your money back. Small Change has already funded multiple successful projects where investors got their money back plus interest.

Project terms vary from a few months to 10+ years. Many projects expect to return up to 8.5%; in some cases, there are also profit-sharing agreements. Small Change doesn’t charge investors any fees.

There is no secondary market for your investment, so you should expect to hold on to it until the term expires.

💰 Takeaway

Small Change is the only real estate crowdfunding platform that lets you invest responsibly. It’s a great option, but real estate crowdfunding is inherently risky, and Small Change has not been tested in a recession.

Make an impact with your money

Build custom ESG portfolios for free

Fees

$0

$125 for M1 Plus

Minimum

$100

Open a green bank account

Fees

Pay what you want

Minimum

$0

Save your change and invest in ESG portfolios

Fees

$3-$5

/month

Minimum

$5

3. Investing in small businesses

Another option of investing with purpose is to support a small business, creating jobs and making an impact in the real economy. It can be a business in your community or a microloan to an entrepreneur in a developing country. You can invest in or lend to small businesses through crowdfunding platforms like Mainvest, Nextseed, Kiva, or Funding Circle.

You can also check out investment opportunities through the impact investing site Investibule. They curate projects from sites like WeFunder and Small Change and group them in themes like investing in women, people of color, or the environment.

Mainvest

Annual Fee$0
Minimum Investment$100
Targeted Returns10-20%
MaturityVaries

Summary

  • Mainvest is a crowdfunding platform that lets you support local, brick-and-mortar businesses

Pros

  • No fees
  • Low minimum investment
  • Individual businesses may offer non-monetary perks
  • More than 90% of the businesses on the Mainvest platform are in good standing
  • Open to non-accredited investors

Cons

  • Lending to small businesses is extremely risky
  • Mainvest is a startup with a three-year track record
  • Limited business curation; Mainvest is not responsible if the business defaults
  • No secondary market for your investment

Review

Mainvest is a relatively new crowdfunding platform that lets you invest in small brick-and-mortar businesses. Their goal is to make it simple to support local entrepreneurs. With Mainvest, you can build a diversified portfolio that includes real brick & mortar businesses.

So far, Mainvest has launched more than 300 investment opportunities. They’ve helped local businesses raise more than $10 million. Over 96% of Mainvest businesses are on track and making payments to investors as promised.

Mainvest was co-founded by Nick Mathews, a former Uber employee, in 2018. It is based in Salem, MA.

With Mainvest, you can invest in the individual businesses profiled on their website. You provide funds to an entrepreneur who wants to expand or needs cash to launch. The business will share a portion of its revenue with you until you receive the promised return.

🔔 Read the full review of Mainvest.

💰 Takeaway

Small businesses often find it difficult to get the funding they need. Mainvest offers them the opportunity to receive capital from local investors. Instead of asking for donations, a small business can use Mainvest’s platform to expand operations or make payroll during tough times. As an investor, you can use Mainvest to support small businesses directly. Although small business crowdfunding is risky, Mainvest could work as part of a diversified investment portfolio.

Nextseed

Fees1-2% on all payments businesses make to investors
Minimum Investment$100
Targeted ReturnsVaries
MaturityVaries

Summary

  • Nextseed is a crowdfunding platform that lets you fund vetted small businesses around the U.S.

Pros

  • Easy access to pre-vetted investments in local startups
  • Open to both accredited and non-accredited investors
  • No upfront or annual management fees
  • Low minimum investment
  • The majority of funded companies have been women- or minority-owned

Cons

  • Lending to small businesses is extremely risky
  • Only 3-4 open investments at a time
  • Unclear how thorough the vetting process is
  • No secondary market for your investment

Review

NextSeed’s investment platform gives you the opportunity to fund vetted small businesses around the U.S. A Kickstarter meets Shark Tank, the platform offers debt and equity investments in local companies.

NextSeed was founded in 2014 in Houston, Texas, by Abraham Chu, Robert Dunton, and Youngro Lee. In November 2020, private investment platform Republic bought NextSeed, adding tech startups, gaming, crypto, and real estate assets to the ecosystem.

All told, NextSeed boasts paying out over $7 million to its investors since 2015.

💰 Takeaway

NextSeed lets you support local businesses, including many led by women and minorities. Although many local businesses do not make it, the ones that do succeed can make a lasting impact on the community.

🔔 Read the full review of Nextseed.

Localstake

FeesNone
Minimum Investment$100
Targeted ReturnsVaries
MaturityVaries, as short as 2-3 years

Summary

  • Localstake is a crowdfunding platform that lets you fund small businesses around the U.S.
  • Many of the listed businesses are in the food and beverage space

Pros

  • You get to support local businesses
  • No fees
  • Low minimum investment
  • Individual businesses may offer non-monetary perks
  • Some opportunities are open to non-accredited investors

Cons

  • Lending to small businesses is extremely risky
  • Localstake is a startup with an undisclosed track record
  • Localstake is not responsible if the business defaults
  • No secondary market
  • Barebones website
  • Few investment opportunities

Review

Indianapolis, Indiana-based Localstake is a local business crowdfunding platform like Mainvest. Founded by two former investment bankers, Ryan Flynn and Brandon Smith, Localstake raised $560,000 in seed funding.

Localstake mostly features small consumer and brick and mortar businesses, though we’ve also found a few solar projects, which may be interesting to green energy investors. Although many of the investments are food and beverage-focused, some of the projects on the platform included Veridian at County Farm, the nation’s first mixed-income net-zero energy community, and Solar Capital, a developer of affordable solar power solutions.

Localstake lists growing companies with revenues that are looking to raise between $50,000 and $500,000 ($250,000 on average for a successful raise). Startups use funds to hire people, open more locations, and buy equipment.

💰 Takeaway

Localstake lets you invest in local businesses, primarily in the food and beverage and consumer spaces. However, this is a new platform with an undisclosed track record.

🔔 Read the full review of Localstake.

Honeycomb Credit

Fees2.85% of your investment (up to $37.25)
Minimum Investment$100
Targeted Returns5-12%+
Maturity3 or 5 years

Summary

  • Honeycomb Credit is a crowdfunding platform that lets you lend to small, brick and mortar businesses around the U.S.

Pros

  • You get to support local brick and mortar businesses
  • Low minimum investment
  • Open to non-accredited investors

Cons

  • High fees
  • Lending to small businesses is extremely risky
  • Short track record with undisclosed default rates; the platform has not been tested in a recession
  • Honeycomb is not responsible if the business defaults
  • No secondary market

Review

Honeycomb Credit is a crowdfunding platform that lets you lend to small businesses in your community and across the country. The platform offers debt investments in vetted companies and markets a 5-12%+ return.

Honeycomb was co-founded by George Cook, a former community banker, and Ken Martin, who is still working for the investment bank RBC, in 2017. According to Crunchbase, the Pittsburgh-based platform raised over $3 million in venture capital.

Since 2017, Honeycomb has helped over 100 businesses run crowdfunding campaigns in 18 states, raising over $3.5 million as of March 2021. According to the company, nearly 60% of businesses on the platform are owned by women or minorities. 55% are in low-to-moderate impact communities.

The average investment on the platform is $1,000, but you can get started with only $100.

💰 Takeaway

Honeycomb lets you support local businesses you love, like restaurants and food trucks. Most businesses raising through the platform are owned by women or minorities. Advertised returns are attractive. However, bear in mind that small business lending is very risky, and Honeycomb has not yet developed a track record.

🔔 Read the full review of Honeycomb Credit.

Kiva Loans

Annual Fee$0
Minimum Investment$25
ReturnsNA
MaturityVaries

Summary

  • Kiva is a microfinance crowdfunding platform that lets you lend to small businesses globally
  • Certification: 501(c)(3) nonprofit
  • Open to non-accredited investors
  • Ability to lend again once you get your money back
  • You can fund loans in the U.S. or developing countries

Pros

  • A donation that lets you get most of your money back
  • You can make a recurring impact with your money by relending your initial capital
  • Supports small businesses and entrepreneurs who can’t otherwise get funding

Cons

  • A donation more than an investment
  • You can expect to lose money over time (according to Kiva, on average, you can expect to get 96% back).
  • The loans you make are interest-free, so you are forgoing the return your money could earn elsewhere

Review

More than 1.7 billion people globally lack access to banking and can’t get capital to start or grow their businesses as a result. Nobel Peace Prize winner Muhammad Yunus pioneered the concept of microfinance, arguing that microloans can lift people in developing countries out of poverty.

Kiva is the best-known microfinance platform that lets you make no-interest loans to small businesses in the U.S. and around 80 developing countries. Founded in 2005 in San Francisco, Kiva is a nonprofit with the mission of helping the unbanked. It has been particularly active in funding women, who get about 80% of the loans. Kiva funds borrowers who are either financially excluded or, in the U.S., are creating an impact in their communities. Borrowers can be farmers, artisans, shopkeepers, or restaurant owners.

Kiva is not actually an investment but a donation where you get most of your money back. You can’t expect to make money from an interest-free loan, and you will likely lose some of the principal (the amount you lent) over time if you keep reinvesting your loan (after it gets repaid) and some borrowers inevitably default. On average, Kiva lenders get 96% of their money back. Most investors on the platform choose to reinvest their loans once those get repaid. The same loan can therefore help multiple businesses over time.

You can start lending with as little as $25. Kiva doesn’t charge investors any fees, relying on donations and partnerships to fund operating expenses. So you can be confident that 100% of your loan goes to small businesses (in the U.S.) or Kiva’s field partners (internationally).

(By the way, this doesn’t mean that the businesses you lend to don’t pay interest on the loans. Kiva’s field partners still charge interest, which is sometimes high, for their work vetting small businesses, distributing funds, and collecting payments.)

💰 Takeaway

Kiva is a popular platform to support small businesses worldwide, though the jury on the effectiveness of microloans is still out. Some of Kiva’s microfinance partners have been criticized for charging very high interest rates. Further, if you lend with Kiva, you will lose some of your principal over time as some borrowers default. You also don’t get any interest. So Kiva is purely a feel-good donation-loan hybrid, not an investment.

Funding Circle

Annual Fee1%
Minimum Investment$25,000 in the platform ($500 in a particular business)
ReturnsVariable (5.3% historically)
MaturityUp to 5 years

Summary

  • Funding Circle is a crowdfunding platform that lets you lend to small businesses
  • Open to accredited investors only
  • You can pick which businesses you want to lend to or let Funding Circle do it for you
  • Historical return: 5.3%
  • Loans are secured by assets (other than real estate) and have personal guarantees from business proprietors
  • Servicing fee: 1% deducted from loan repayments annually

Pros

  • Supports small businesses
  • Secured loans
  • Diversification across loans
  • Lend to established businesses only (no startups)

Cons

  • No secondary market
  • Accredited investors only
  • High minimum investment
  • Investments in small business loans are inherently risky

Review

Founded in 2010 in the UK, Funding Circle is a crowdfunding platform that lets you fund established, creditworthy small businesses. You get to support the local economy and create jobs. (According to research from Oxford Economics, Funding Circle loans helped create or sustain 38,000 US jobs in 2018.)

In the U.S., the platform is available to accredited investors only. If you qualify (because you earn over $200,000 a year over two years or your net worth exceeds $1 million), you can invest in small business loans sourced by Funding Circle. The minimum investment is $25,000, but you can allocate that to different businesses. The minimum investment in a business is $500, so $25,000 lets you invest in 50 companies. You can choose individual companies to lend to through the pick-and-choose marketplace or use the Auto Invest tool that will automatically invest your money across multiple loans.

Funding Circle assesses the creditworthiness of each business before listing it on the platform. They don’t include startups: the average business is 11 years old, has 12 employees and $1.44 million in annual sales. All businesses are at least two years old. Borrowers use the money for various purposes, such as buying equipment or opening new locations. Funding Circle doesn’t lend to weapons manufacturers or gambling businesses.

The investment takes the form of promissory notes. You will get your share of principal and interest (after Funding Circle charges a 1% servicing fee) as businesses repay their loans. Each loan is secured by non-real estate collateral such as inventory or equipment. On top of that, business owners provide personal guarantees.

Investments are for terms of up to five years. Once you’ve invested, there is no way to get your money out until the loan matures.

The loans originated by Funding Circle between 2013 and 2019 generated annual returns of 5.3%. Of course, there was no recession during that period. Returns are not guaranteed, and your entire investment is at risk if the businesses default.

💰 Takeaway

Funding Circle is an interesting way to support small businesses if you are an accredited investor. Your loans are secured, and you can pick the ones you invest in. Of course, lending to small businesses is risky, so we recommend only allocating a small percentage of your portfolio.

SMBX

Investor FeeNone
Minimum Investment$10
Target ReturnsUp to 9%
Maturity1 – 10 years

Summary

  • SMBX is a crowdfunding platform that lets you lend to small businesses
  • Open to non-accredited investors

Pros

  • You get to support local businesses you know and love
  • Low minimum investment ($10)
  • Easy-to-use, highly-rated mobile app
  • Open to non-accredited investors
  • Earn up to 9% (returns are not guaranteed)
  • No investor fees

Cons

  • Lending to small businesses is extremely risky
  • Short track record with undisclosed default rates; the platform has not been tested in a recession
  • SMBX is not responsible if the business defaults
  • You are unlikely to be able to resell your investment

Review

SMBX lets you invest in small business bonds. A bond is like a loan, but instead of borrowing from a bank, a business borrows from everyday investors.

From the small business perspective, instead of going to a bank and taking out a loan, they can raise funds from their community. If all goes well, it is the investors, not the bank, who get to profit. Some small businesses, especially those in low-income communities, have struggled to get loans from banks, so borrowing from individual investors is a good alternative.

As an investor, you can start lending with only $10 and get paid principal and interest monthly. Although returns are not guaranteed, and small business lending is risky, if all goes well, you can earn up to 9% in passive income each year. The offerings on the SMBX platform in October 2021 were paying 6.5%-7.5% in annual interest and had terms between 12 and 120 months. Businesses were raising from $25,000 to $2 million.

Anyone with a U.S.-based bank account can invest, including non-accredited investors.

💰 Takeaway

SMBX is an innovative way to help businesses in your community, but don’t invest what you can’t afford to lose and don’t count on passive income from the bonds to meet your spending needs.

🔔 Read the full review of SMBX.

Make an impact with your money

Build custom ESG portfolios for free

Fees

$0

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Minimum

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Fees

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Minimum

$0

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Fees

$3-$5

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Minimum

$5

4. Peer-to-peer lending (Prosper)

You can also make an impact by lending directly to a person in need. Peer-to-peer (P2P) lending platforms like Prosper let you lend directly to an individual.

Prosper Marketplace

Annual Fee1%
Minimum Investment$25
ReturnsVariable (5.6% historically)
Maturity3 or 5 years

Summary

  • Prosper is a peer-to-peer lending platform
  • Open to non-accredited investors
  • You can pick which people you want to lend to or let Prosper do it for you
  • Historical returns averaged 5.6% (between 2009 and 2021)
  • Account types: taxable investment accounts and IRAs
  • Loans are unsecured

Pros

  • Supports people in need
  • Convenient app
  • Low minimum investment
  • Diversification across loans
  • Quality checks on borrowers

Cons

  • No secondary market (you can’t resell your loan)
  • Loans are unsecured
  • No government (FDIC) insurance on loans or the platform itself
  • Unclear how loans will perform in a recession

Review

Founded in 2005, Prosper was the first P2P lending platform, funding over $19 billion to date. After the other big P2P lender, the Lending Club, stopped taking money from individual investors and converted to a bank, Prosper stands as the leading P2P platform that accepts non-accredited investors.

You can start investing with as little as $25. The platform lets you select the loans you want to invest in; Prosper groups them in different risk buckets, from AA-Bs to C-HRs, depending on the borrower’s creditworthiness. Riskier loans promise higher returns. You can also use the Auto Invest tool, which will automatically invest in loans that meet your criteria, such as Prosper rating, borrower employment status, and public record status. Applicants can borrow between $2,000 to $35,000 to fund various expenses like debt consolidation, home improvement, and medical expenses.

Loans are for three or five-year terms. Since there is no secondary market, once you’ve invested, you can’t get your money back until the loan matures. The rates Prosper charges borrowers range from 6.38% to 35.36%, depending on their rating. Your returns will be lower since some borrowers will inevitably default.

Since 2009, Prosper loans generated 5.6% for investors on average. Your returns will vary based on the risk level you select and the future economic environment.

Prosper makes money from a one-time fee paid by borrowers and a 1% annual loan servicing fee from investors.

💰 Takeaway

P2P lending can add an element of diversification to your portfolio while helping people in need. However, it remains to be seen how the loans will perform in a recession (P2P startups were just starting out before the last recession.)


There are more ways to invest with impact than just buying ETFs or mutual funds. You can put your money to work by backing CDFI loans, affordable housing, entrepreneurs, and people in need.

🔔 How about making sure your checking and savings accounts also support responsible institutions? Check out our guide to banking sustainably.

Methodology

We compared community investment options based on marketed interest rates, expense ratios and fees, certifications such as B Corp, liquidity and early redemption options, social impact potential, customer experience, and minimum investment.