Exactly 1,370 investors have poured nearly $1.3 million into 11 Portland area companies over the last three years through the SMBX platform.
The investments move through what the online platform calls small business bonds. Small businesses sell the bonds at between 7% and 11% interest, with loan terms between two and seven years. To list on the SMBX marketplace, companies submit two years of GAAP financials to help develop the terms of the bond.
San Francisco-based SMBX emerged from the JOBS Act, the same law that enabled equity crowdfunding. The founders of SMBX believed the rules allowed for a financial system that lets non-accredited investors to loan businesses small amounts of money.
Portland has embraced the platform, said co-founder and CEO Ben Lozano. Others are Washington, D.C., where SMBX has a partnership with the city, as well as San Francisco and Oakland, Calif.
Small business owners use SMBX because it allows startups to go directly to their communities for support.
“It’s the idea of borrowing from the people who drink their beer or buy their shoes, and then paying them back is something (small business owners) would rather do,” said Lozano, as opposed to borrowing from a bank and then paying the bank back.
It’s an ethos that plays well in Portland.
“There is also a subtle cultural component to it. People in Portland really value small and medium sized businesses,” he said. “The idea of Walmart coming in to provide the same service strikes folks in (Portland and the other cities SMBX is popular) as not the world they want to live in.”
Initially, Lozano said they created SMBX as an alternative to an SBA loan. But as SMBX developed, he found the two routes are pretty comparable. The edge comes from SMBX’s ability to tap into a borrower's community of customers and supporters.
See also: 5 alternative pathways to startup capital
Two Portland businesses used SMBX as an avenue for funding after bank lending was off the table.
Sharon Maxwell, founder and CEO of Bratton Construction raised $271,040 on SMBX last fall. At the time of her offering she called the platform “a game changer.”
“As a minority, woman-owned business in a male-dominated industry, going to the banks and trying to secure a line of credit and capitalize to be able to scale and grow, we have struggled over the years. Even after showing good results and great financials, we are still (told) that is not enough,” she said.
She's using her funding to invest in hiring and equipment to fulfill contracts won by the company.
Earlier this year, Erik Hernandez, founder and CEO of Mise, raised $124,000 to help the footwear startup order inventory stay ahead of its demand. Hernandez tried to secure traditional bank lending as well as an SBA loan but was rejected.
"While we struggled to find support from these traditional avenues, The SMBX enabled us to demonstrate our viability, build trust, and forge deeper connections with our community by giving everyone a chance to show their support through investing in our future," he said.
"The SMBX proved to be a true advocate for small businesses like ours, empowering us to overcome traditional barriers and leverage the strength of our community," he added. "We not only secured the funding we needed at the time to replenish our inventory and meet the growing demand for our product, but also reinforced the belief we have had from the start that MISE is committed to supporting a community that genuinely believes in our potential and is willing to support us in return."
The company makes shoes designed for chefs and the hospitality industry.
Other Portland area companies that have sold small business bonds on SMBX are brewery Culmination Brewing, food and beverage manufacturer Community Co-Pack and restaurant Mirisata.
