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Honeycomb Credit Review -- Invest in small-business loans
Honeycomb Credit is an SEC-registered Title III funding portal, offering fixed-income investments in small-business loans.
Overview
This Honeycomb Credit Review will help you learn more about Honeycomb Credit's investment offerings, including how the alternative investments on Honeycomb Credit are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.
Honeycomb Credit is a Pittsburgh-based Reg CF Title III Funding Portal, registered in June 2017. Honeycomb focuses on fixed-income investments in the form of small-business loans. Their investor education material is quite good, and their focus on small and local businesses should resonate with many prospective investors.
Types of investments Honeycomb Credit offers
Most investments on Honeycomb are to finance small businesses (such as restaurants or breweries) looking to expand locations, upgrade equipment, or otherwise fund growth opportunities. All investments are currently open to anyone to invest via Reg CF.
What do you get when investing with Honeycomb Credit?
Investors in offerings on Honeycomb Credit receive Promissory Notes entitling them either to regular payments over the life of the loan, or a portion of the business revenue until the loan is repaid.
In many cases, the loans are secured by a lien (either on a specific piece of equipment, or a general business lien) and/or a personal guarantee from the business owner. (A personal guarantee will lower the interest rate paid by the borrower.)
How does Honeycomb Credit make money?
There is no fee to register and review investments. Honeycomb does charge a transaction fee to make investments, as a percentage of the amount invested (but not greater than $10). As with most Reg CF Title III Funding Portals, Honeycomb charges issuers a percentage of amount raised (typically 6-8%).
Potential returns and cashflow
Offerings on Honeycomb typically included quarterly payments to investors, with interest rates between 6-14%. The investment term can vary, but as of this writing all open offerings were for 60-month terms (5 years).
Details can vary slightly with each investment, but there are two main repayment models offered by Honeycomb Credit:
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A traditional debt offering, where the borrower pays a predetermined principal and interest payment each month for the term of the loan
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A revenue share variation, where the borrower pays a predetermined percentage of their revenue each month until a defined multiple of the original investment is reached. For example, 4.25% of sales (so the amount may fluctuate each month depending on sales) until investors receive 1.6X their original investment, but for no more than 60 months (if investors haven’t received the 1.6X by then, the full amount comes due).
The revenue share model is clever, and it’s obvious why it’s appealing to businesses facing unpredictable cash flow.
It can be a bit tricky to compare investments apples-to-apples, but as a rule of thumb to get an approximate IRR equivalent, you can take the multiple, raise it to 1 divided by the term in years, and then subtract one. For example, if the multiple is 1.6 and the term is 48 months, 1.6^(1/4) - 1 = 12.5%. (Though note that if the full multiple is paid before the term is over, the effective rate of return would be higher.)
Breadth of offerings on Honeycomb Credit
There are nine offerings available as of this writing. Most offerings are in food, retail, or breweries.
Regulatory framework
Honeycomb Credit is an SEC registered Title III Funding Portal, offering investments through Reg CF which means they are subject to a range of rules and obligations around investor education and due diligence. All companies offering investments on Honeycomb will have been a minimum of background checks of key officers and owners. Prospective investors also have access to online forums to talk with other investors, and an online channel for asking questions of the company raising funds (and viewing answers of prior questions from others).
This review was first published on 07 January 2018, and last updated on 01 October 2021.
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