By Thomas Kostigen
We’ve all likely received requests to support our local stores and restaurants during this COVID-19 pandemic, as these businesses have scaled back or shuttered any in-person experiences, greatly dimming their sales. Even before the pandemic, environmentalists urged shoppers to buy locally grown food to save all the greenhouse gas emissions associated with transporting and importing food grown in far-away places. Besides, local farms are often small, family run businesses in need of support.
You can also invest locally, too. From cooperatives to credit unions, there are a slew of opportunities to invest in local businesses. Here are a few to consider:
- Community development loan funds provide capital for neighborhoods that lack access to financing. These funds offer a number of different opportunities for different types of businesses and community programs. Investments are loans and investors receive a set interest rate for their capital — albeit often below typical market rates.
- Cooperatives allow you to purchase membership shares in them. Coops can range from grocery stores to clothing stores or any number of businesses. Members receive discounts and often receive investment opportunities in the form of loans, for which they receive a preferred interest rate.
- Credit unions and community banks. These institutions operate very much like larger, national banks and offer certificates of deposits and other financial products. They typically offer higher rates of interest on checking and savings accounts, too.
- Business development companies invest in small and medium sized businesses. They operate like a venture capital or private equity fund — for the masses. Whereas VCs and the like typically have investment minimums in the hundreds of thousands of dollars or millions, BDCs have much smaller requirements, allowing investors to get in on the ground floor of businesses.
- Direct public offerings are a cheap way for companies to offer shares to the public. Instead of spending millions of dollars for an initial public offering on a major stock exchange, a DPO allows companies to sell shares directly to investors. This is usually a very small group of friends and family and the like.
- Microfinance is how any small enterprises raise money. They offer micro loans in sums that can range from less than one hundred dollars to many thousands of dollars. There are a number of platforms that offer these loans to small businesses and entrepreneurs all over the world.
- Peer to peer lender platforms are how many people are borrowing and lending money these days. Lenders get a nice return on their investments. And individuals or business get the capital they need. Basically, these networks take on the role of banks and make personal or business loans based on credit criteria.
- Community-Supported Agriculture programs have been a popular fixture in farm country for decades. Here you buy in advance (typically at a discount) your produce and receive it later in the season. Restaurants and other businesses have begun offering a version of this during the coronavirus pandemic. For example, buy a restaurant “bond” for $80 that will be worth $100 later in the year (when lockdowns lift).
To be sure, local businesses come with much of the same risk as big businesses. Even if you happen to know the owner, it’s a good idea to get objective advice from a financial professional before you invest local.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.
