SMBX Bonds Review: Invest in Small Business Bonds

SMBX is a marketplace connecting everyday investors with small businesses. You can earn attractive returns by investing in a local small business you love. Learn if you should invest.

SustainFi October 27, 2021

Rating: Good (4.0 / 5)


  • Investment Type: debt
  • Minimum Investment: $10
  • Target Return: up to 9%
  • Maturity: varies, from 12 to 120 months
  • Liquidity: none
  • Open to non-accredited investors
  • Investor fees: none


  • 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


  • 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

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What is SMBX?

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.

Although the About Page doesn’t disclose much detail about the team behind SMBX, according to Crunchbase, SMBX was founded in 2016 and is headquartered in San Francisco, California. The company was co-founded by Ben Lozano, Jackie Chan, and Bhavish Balhotra. As of October 2021, SMBX has raised $15 million in funding.

How do small business bonds work?

A bond is an IOU like a loan. You lend money to the business for a defined term, such as 60 months, and they pay you monthly interest, such as 7.5%, and some of the principal (the amount you initially invested). Both interest and principal payments are set in advance. As more of the principal is paid back, the interest rate on the bond only applies to the remaining principal. SMBX structures the payouts to be even throughout the bond’s life, so each month, you can expect the same total amount.

SMBX offers two types of bonds, secured and unsecured.

Secured bonds are backed by assets like equipment, inventory, and real estate. If the business files for bankruptcy, you may recover some of the investment by selling these assets. (You won’t be doing any selling yourself, SMBX will take care of that in the worst-case scenario.)

Unsecured bonds are not backed by any asset, so if the business defaults, there won’t be any assets to liquidate. So unsecured bonds generally offer less protection to investors in the worst-case scenario than secured bonds.

Small business bonds let businesses raise capital to spend on things like opening a location, buying inventory, or hiring. Instead of going to a banker and asking for money, they can go to their customers and even benefit from free marketing from the fundraise. And investors who were not customers before will probably be customers in the future.

How does SMBX make money?

SMBX charges businesses a fee of 3.5% of the total amount they raise, assuming the fundraise is successful.

Investors don’t pay any fees if they invest through their bank account.

How does SBMX select the businesses on its platform?

Offerings fall under Regulation Crowdfunding, which requires SMBX to do checks on each business to make sure it’s not fraudulent.

As part of their due diligence, SMBX looks at:

  • Company financials
  • Previous two years’ tax filings
  • Organizational structure and officer employment history
  • Background checks on owners and officers
  • Business formation and active status in the state of operations
  • Business insurance coverage
  • Current debts and outstanding securities
  • The business model
  • Customer and vendor reviews
  • Management tenure
  • Competitive landscape

SMBX doesn’t disclose what percentage of businesses pass muster. (In contrast, competitor Mainvest says that they only select 5% of applicants.)

To set the interest rate, SMBX looks at financial metrics like cash flows relative to debt, and qualitative factors like customer reviews.

Most of the companies listed on the platform are brick and mortar businesses, including restaurants, breweries, and bakeries, though there are also consumer products and various services.

Many issuers are located in the Washington D.C. area, where Mayor Muriel Bowser recently announced a partnership with SMBX called the D.C. Rebuild Bond program. The program seeks to fuel $5 million in local investment for small businesses, focusing on communities underserved by the traditional banking system.

As of October 2021, active offerings on the platform included:

  • Kenyatta Computer Services, a provider of IT services for small and medium businesses
  • Osito, a live fire restaurant in San Francisco
  • El Tamarindo, a Salvadoran restaurant in Washington D.C.
  • Sticky Fingers Sweets & Eats, a vegan bakery in Washington D.C.
  • Chaia, a veggie-centric taco shop in Washington D.C.
  • DC Brau Brewing, the first production brewery in D.C. in over 60 years

How much can I invest?

Anyone with a U.S. bank account can invest with as little as $10. You do not have to be accredited. (To be an accredited investor, you need to earn at least $200,000 a year for two years or have a net worth of over $1 million, excluding your primary residence.)

But, if you are not an accredited investor, there are limits to how much you can invest:

  • If your annual income or net worth is less than $107,000, you can invest up to the greater of $2,200 or 5% of the greater of your annual income or net worth each year
  • If your annual income and net worth are $107,000 or more, you can invest 10% of the greater of your annual income or net worth each year
  • Either way, the total amount you can invest per year cannot exceed $107,000 

Accredited investors do not have any investment limits.

How do I invest with SMBX?

After you sign up and link a payment method, you can place orders in the marketplace. You just need to click “Buy Bonds” and put in the amount you want to invest. The design of the platform is intuitive, and the mobile app has a high rating. SMBX will show you the amount of interest and principal you can expect each month.

If the offering meets the minimum and is successful, bonds are allocated to investors, and the business starts paying you the month after the allocation. You will get paid a portion of the amount you originally invested (the principal) plus interest each month until maturity, assuming the business is in good standing. You can keep the money in your portfolio, held in an escrow account, or wire it back to your bank account.

Businesses also have an option to pay you back early. This may not actually be a good thing because the business has probably found a cheaper way to refinance, and you may not be able to find another opportunity with such attractive terms.

What fees does SMBX charge?

Investing is free if you use your bank account, but there is a 4% fee if you invest with a credit card.

Is SMBX safe?

SMBX has raised $15 million in venture capital, and it is governed by regulations established by the SEC (Regulation Crowdfunding) and FINRA.

However, small business lending is not without risk. Many of the issuers on the platform are in the food and beverage industry. But, 60% of restaurants fail in year one and 80% in the first five years. The quality of the offerings on the platform may be better than average, but we don’t know for sure because SMBX is a new platform with no published track record.

SMBX is an intermediary that doesn’t co-invest in the bonds, and they make money from business listing fees. Although longer-term they want investors to continue to use the platform, their short-term incentive is to list as many companies as possible, so long as they comply with Regulation Crowdfunding rules.

Also, there is no secondary market for the bonds, and it is unlikely that you will be able to offload them to another investor at any point. (Bonds cannot be transferred or resold at all during the first year after issuance.)

SMBX is not Better Business Bureau accredited, and, as an alternative investment, your investment is not FDIC or SIPC-protected.

SMBX vs. Mainvest

Both SMBX and Mainvest are local business crowdfunding platforms, though there are a few differences in how they operate.

Both platforms offer:

  • No investor fees
  • Debt investments (revenue sharing notes at Mainvest, bonds at SMBX)
  • Opportunities for non-accredited investors
  • Mostly food and beverage, consumer and retail businesses
  • Multiple investment opportunities at any given time

SMBX wins if you are looking for:

  • A lower minimum investment ($10 vs. $100 with Mainvest)
  • A more predictable repayment schedule (repayments with Mainvest are tied to business revenue)
  • A mobile app

Mainvest wins if you want:

  • A Better Business Bureau accreditation
  • Greater transparency (Mainvest approves 5% of the businesses that apply, and 97% of businesses listed on the platform are in good standing)

🔔 Read our review of Mainvest.

💰 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.

🔔 Looking for other ways to invest with impact? Check our guide to investing in communities and small businesses.

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