This may be a slightly odd question with which to start a legal blog post, but do you like burritos, wine, or chocolate? Who doesn’t, right? If only there was a way of making money off your addiction to tasty Mexican treats or decadent Swiss truffles? Well, as it turns out, there might be…

Mini-bonds have become an increasingly popular source of finance over recent years, especially as traditional forms of bank lending have become more difficult to source. Mini-bonds can allow a  business to really engage with its customer base and encourage them to “buy-in” to the company. For example, Chilango, the chain of burrito outlets asked customers to “become part of their story” by investing at least £500 in an 8% burrito bond. Alongside interest payable to bondholders, mini-bonds can involve certain payments being made in kind, in non-monetary form. For example, Chilango offered free burritos to its bondholders. Similarly, Naked Wines, the online wine retailer, offered a mini-bond that paid 10% in wine or 7% in cash.

So what is a mini-bond? In the UK, such “bonds” are seemingly a misnomer, and often bear more resemblance to a series of small crowdfund-style loans from individuals. Such bonds are not tradeable and neither are they secured – meaning there is little recourse or help from external sources if things go wrong for the company or interest is not paid when due. As they say though, the greater the risk, the greater the reward – and mini-bonds offer impressive rates of interest to mitigate the associated risk.

From a Company’s perspective as an issuer, mini-bonds have a number of advantages. They can offer a much more diverse source of financing than traditional floatations or bank loans. By their very nature, such issuances target private individuals (who on average invest a few thousand pounds each) rather than larger floatations which are often bought up by institutional investors. These individual mini-bondholders can spread the word and enhance the Company’s brand. Mini-bonds are also much cheaper for the Company than a normal bond – since they aren’t tradeable there is no need for a prospectus, as with a normal bond. The documentation that is involved is much more tightly focused on helping potential investors identify the risks, and is often complemented by a marketing brochure or an information memorandum. Finally, the issuing company and investors can benefit from considerable tax advantages. The issuer can deduct issuance expenses in the year where they are incurred and investors can claim income tax relief of up to 30%. What is more, from a timing perspective, such transactions can be brought to market in a much shorter timeframe.

The mini-bonds issued to date by household names such as Hotel Chocolat, King of Shaves, the Jockey Club and John Lewis have really energised and excited the markets at a time when new issuances are starting to take off. Hopefully continued activity in this space will prove to be a real breath of fresh air to the market, benefitting issuers and investors alike.

The excitement that these mini-bonds have generated in the market show that they aren’t simply a flash in the pan, but look set to be a fixture on the financial menu for a long time to come.