Providence Bonds, UK subsidiary of the international factoring business Providence Global, has launched its first 'mini-bond', which promises to pay 8.25% for four years.
The firm is hoping to raise £25 million through Independent Portfolio Managers Ltd, which it will use to finance growing small and medium-sized businesses in the UK and internationally.
Unusually, the Providence Bond is secured against the underlying assets of the bond issuer. The money raised will be invested in small and medium-sized businesses internationally at first, but within the UK as the firm builds relationships with British companies.
Recent research found that a third of UK economic growth was generated by fast-growing small businesses.
Providence Bonds will act as a guarantor to ensure bondholders get their money back in case anything goes wrong.
Paul Everitt, director of Providence Bonds, says: "Government studies show that more than 99% of private firms in this country are SMEs employing up to 249 people. They are the engine of the UK economy.
"These firms need capital to survive and thrive, and the banks are in general failing to provide it. In the meantime many savers are being offered a below-inflation return on their cash savings. This mini-bond is allowing us to help with both problems."
Although the bond includes safeguards including those mentioned above, investors should be aware that it is not covered by the Financial Services Compensation Scheme. This means that investors will not necessarily be due compensation should things go wrong.
This article was written for our sister website Money Observer