Retail bonds are an important – yet overlooked – source of financing for small and growing businesses argues Rupert Lee-Browne
For many small businesses short of finance, growth can seem out of reach. But when I launched Caxton FX in 2002 I quickly learnt that a solid, loyal customer base is the best foundation upon which to build a long-term business.
And as banks have become more reticent to lend, there has been an explosion of alternative finance routes that start-ups and growing firms can take advantage of.
Experimenting with different sources of external finance is key to allowing small businesses to grow, and Britain should be doing more to encourage SMEs to venture into bigger and better places. One of the latest unconventional sources of funding is retail bonds – which rely on and reward customer support.
The Order book for Retail Bonds (ORB) was launched in 2010 to enlist a new generation of retail bonds and provide investors with liquidity. And so a new era dawned for retail bonds; they were introduced to a larger market and as a viable source of funding for Britain’s small businesses and start-ups.
The bond was innovative and new, fitting for an innovative and growing company like ours
With customer service at the heart of Caxton FX, I’ve worked hard to build up our network of loyal customers – and I’m dedicated to keeping our focus on the customers and hiring staff that share this vision.
In 2011 we knew we wanted a financial boost to generate growth at Caxton FX, but traditional financing from banks was nowhere near as appealing as a customer bond.
The bond was innovative and new, fitting for an innovative and growing company like ours. However the real incentive for us was that it was a mutually beneficial way to grow by and for our customers; those who invested received a healthy 7.25% return on their investment.
We were delighted with the result of our first bond and the way in which it has allowed us to innovate and grow beyond expectations. Caxton FX increased its turnover by 85% to c. £750m per year – about half of which comes from our popular pre-paid currency cards – and expanded its customer base to over 200,000.
75% of the original investors chose to reinvest and the second bond was so oversubscribed that it completed in a third of the time it was open to the market
The success of my first retail bond, which raised £3m, meant it didn’t take me long to think of issuing a second bond this year when I needed to fuel another accelerated phase of expansion for Caxton FX.
I was blown away by the response: 75% of the original investors chose to reinvest and the second bond was so oversubscribed that it completed in a third of the time it was open to the market.
I don’t think the impact and benefits of customer bonds are overstated enough and, thankfully, more growing businesses are waking up to this.
Companies can also reward their users while increasing the custom they bring in – just take Mr & Mrs Smith, the boutique hotel chain who launched a four-year bond in 2012. This bond not only offered investors a 7.5% return but this increased to 9.5% if they spent the money exclusively at the hotelier’s listed establishments.
Not only do retail bonds prove an important source of financing for small and growing businesses, but they provide a new way for customers to express their brand loyalty and satisfaction. Never before has a satisfied customer been so instrumental to the success of a new or growing British business.
Rupert Lee-Browne is CEO and founder of Caxton FX
Need another perspective on retail bonds? Here’s Mr & Mrs Smith’s James Lohan’s on why he chose that route
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