Hotel chain, Mr. & Mrs. Smith is the latest business to ask its loyal customers to lend money to them to fund future growth by issuing corporate bonds to investors. The customers will be given a return worth 7.5 percent. If they spend it all at the hotel chain then the return will grow to 9.5 percent.
This is the latest trend among some businesses such as Tesco Bank whose corporate bonds were quite well received. Another one was John Lewis whose 6.5 percent bond pays out in John Lewis or Waitrose vouchers. The four year Smith Bond will pay out in cash or loyalty money is available until the £5 million target is reached or until June 22nd, whichever comes first.
Although it may sound tempting it would still be quite a high risk investment in what is basically quite a small company. Also any money invested is not protected by the Financial Services Compensation Scheme. So although Mr. & Mrs. Smith may have the pulling power of Angelina Jolie and Brad Pitt, potential investors should tread warily. Whatever the outcome, more firms seem set to jump on the bandwagon.
Most firms thinking about this form of money-raising seem to be just testing the water at the moment. The natural fast-food company, Leon, were asking their club members if they would like to buy a three year bond to be exchanged for ‘£eon pounds’ which customers could then spend in their restaurants. And Hotel Chocolat, instead of interest is offering potential bond buyers boxes of chocolates.
Leon have said that they are ‘just looking’ at the moment but have hinted that they could be paying out as much as 10 percent or 300 £eon pounds for an investment of £3000. And for a lower investment of £1500 they could pay out 8 percent or 120 £eon pounds. Free entry into a prize draw is another inducement which may be on offer.
So the big question is whether this is a serious investment worth looking at or is it just for the loyal customers who would do anything to be linked to their favourite brand name. Whichever way you look at it, the options have to weighed up carefully before laying out any money.