Investing in bonds in a company through crowdlending
Like shares, bonds fall under financial assets. With shares, you invest in the capital of a company, while bonds are debt instruments. With bonds, you so to speak lend money to a company.
By issuing bonds through crowdlending, a mature company can find funding from private investors. And on LITA.co, the platform for sustainable and ethical investing, you're the investor! LITA.co is actively committed to financing the real economy, which is precisely why you will only find unlisted bonds on our platform.
When you invest in bonds on LITA.co, you receive a fixed annual interest rate, as well as the reimbursement of the invested amount over time. The annual interest rate is between 4% and 10% and the duration of the loan varies between 2 and 10 years. Unlike shares, bonds do not allow you to participate in the governance of the company. Therefore, you do not have voting rights at the general meetings.
Why invest in bonds on LITA.co?
- Benefit from an annual interest rate
- Know in advance the profitability and duration of the investment
- Diversify your investment portfolio by financing the development of more mature companies
- Make your savings grow in the medium and long term with a positive impact on people and planet
How do unlisted bonds work?
Unlike the listed market, the private market does not have a regulated secondary market where financial instruments circulate through a direct buy-sell mechanism and ensure the liquidity of an investment (stock exchanges).The exchange of unlisted financial instruments occurs exclusively on the basis of agreements concluded directly between investors (which implies long and complicated processes). For this reason, investments in unlisted bonds are usually part of a long-term dynamic with the aim of holding the bonds until the reimbursement date.
Although investing in unlisted bonds via crowdlending clearly carries risks (illiquidity, partial or complete loss in case of default by the company), it allows investors to direct a part of their savings towards the real economy by directly financing small and medium-sized enterprises (SMEs) that participate in a local economy and boost local activity through the creation of jobs and sustainable value.
In what types of companies and sectors can you invest in bonds on LITA.co?
On LITA.co, bond investments are usually proposed to finance mature SMEs seeking to continue their development, companies which have reached or are in the process of reaching financial equilibrium. Sometimes these are also start-ups scaling up or focusing on advanced technological innovations. On LITA.co you will only find social or ecological companies active in crucial transition sectors: from renewable energy and responsible agriculture to sustainable real estate.
We value transparency and want to give you the opportunity to be closely involved in the entrepreneurial adventure. Therefore, we give you regular access to information on the evolution of the financial situation and the impact of the company during the term of your investment.
What are the features of bonds?
Methods of reimbursement
Two methods are preferred for repayment of an investment in unlisted bonds:
- Constant Amortization: With this repayment method, investors recover a portion of the capital loaned each year (e.g. ¼ of the capital if the bond debt is issued over 4 years). Thus, the amount of interest decreases each year as less and less borrowed capital remains.
- In fine or bullet reimbursement: investors are repaid the initial capital on the expiration date of the bond.
In some cases, the constant repayment of capital does not take place from the first year on (N+1). When defined at the time of the investment, it can also start at a later date (N+2, N+3...).
There are different types of debt (bank loan, bonds, etc.). Each is assigned a seniority rank which corresponds to legal repayment priorities. A senior debt is a debt that is repaid with priority. Generally, the most senior debt is bank debt.
The repayment of junior debt (also called subordinated debt) is conditional on the repayment of a senior debt. Between senior and junior debt there is the unsecured debt, which has an intermediate rank.
Examples of repayment schedules
Let's take the example of an investment via crowdlending of €1,000 in bonds, over a period of 3 years, with an annual interest rate of 5% and made in 2021.
The different possible repayment schedules would be as follows:
Constant amortization with 2 years deferral
In fine repayment
Which taxes apply when investing in bonds?
When you invest in bonds via LITA.co, you are crowdlending money to a company for a number of years and in return you receive interest. As this interest is considered as income, as a private individual you have to pay taxes on this income. This is known as 'withholding tax', which is normally 30%. However, if the company is a start-up and meets the conditions, you can benefit from an exemption from this withholding tax.
You can benefit from this:
- during the first 4 years of the bond loan
- for the first €15,000 (indexed annually, in 2022: €15,630) for new loans concluded within a period of four years (per taxpayer and per year).
To find out more, don't hesitate to make an appointment with a member of our team.