Retail ‘little guy’ investors like us have the JOBS Act , passed in 2012, to thank for the amendment to Regulation A known as Reg A+. The nickname for Reg A+ is the mini-IPO (initial public offering) as most people in finance see it as a miniature version of access to public markets. Currently, there are 5 p2p lending platforms that are using it that are accessible to retail investors.
Reg A+ allows for access to public markets in a way that a standard IPO allows without the heavy costs, fees and compliance that a full IPO requires, thus the mini part.
Many companies are using Reg A+ to crowdfund for equity investment. While that is a great use for it, we are talking about marketplace lending so let’s see how platforms are using Reg A+ in the peer to peer lending world.
First, a little more about what Reg A+ is and does and why it is important for us.
Two Investment Tiers
In 2015, the SEC released the final rules on how to use Reg A+ by offering 2 tiers of investment offerings. Tier 1 allows companies to raise as much as $20 million in a 12 month period and Tier 2 allows up to $50 million in a 12 month period. The larger Tier 2 offering requires some additional compliance like audited financial statements, annual reports, and a limit on the number of securities a retail/unaccredited investor can buy. That limit is no more than 10% of your annual income or net worth. This is a self-reporting requirement but keep this in mind and a platform may ask you about your net worth if they have a Tier 2 offering.
For reasons that include compliance costs and amount of capital they can raise, most platforms opt for the Tier 2 offering. Crowdfund Insider has some excellent analysis on the difference between the tiers. This analysis is a great resource for those that want to learn more details about the topic.
There are 5 online lending platforms using Reg A+. Four of them are in real estate. I’ve covered them in previous posts covering Reg A+. The 5th is in small business and they have a pretty cool angle to their business. The peer to peer small business lender is Streetshares.
Streetshares is a small business lender with an interesting twist. That twist is they focus on small businesses owned by veterans or their spouses. Their use of Reg A+ is unique as well. They created a product they call the Veteran Business Bonds. It’s a one year term and pays a fixed 5%, like a bond coupon payment. Your money is invested across all of the Streetshares loans available at that time.
The minimum investment is only $25 and the maximum is $50,000. Your money is locked up for a year and at the end of that year you can choose to roll it over into another 12 month Veteran Business Bond or liquidate.
The great thing about this platform is its ethos. It not only serves veteran-owned businesses but there are veterans groups on the investing side of the platform too. What this means, and this is no small thing, is that veterans are borrowing from their fellow veterans (and not just borrowing from you). That equates to some of the lowest default rates in the industry. Streetshares also has a non-profit foundation that serves veterans’ groups.
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Back to our regular programming......Here are the nuts and bolts if you are considering an investment with Streetshares:
Minimum Investment: $25
Rates: 5% fixed
Term: Short term, maximum 36 month loans for borrowers (1 year term for you)
Liquidity: Funds are committed for 12 months, however, you can access during that term if you pay fees. Totally liquid after that time.
IRA Accepted?: Yes, they work with Millennium Trust as custodian if you don’t have a custodian that allows this and you need a self-directed IRA
Types of Property: Might be Business assets, Accounts Receivable/Inventory, Equipment or None
Safety: Likely have little to no collateral. You have some protection based on the idea of veterans borrowing from veterans. Really, you do.
Thanks to Reg A+ there are more options open to retail investors, but there is currently only one small business lending option. Streetshares is that option with their Veteran Business Bond offering. If you have wanted to lend to small businesses then you should give this platform a look.
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