StreetShares is a small-business lender with a focus on serving veteran-run businesses, but is open to anyone to join as a borrower or investor. Loans are funded through a mix of institutional and accredited investors on their "Pro" platforms, and StreetShares itself, which in turns finances those loans in part by offering a 5% return to individual investors via what they call "Veteran Business Bonds".
- Low minimum investment ($25)
- "Veteran Business Bonds" offering open to anyone to invest
- Offers automated investing
- Annual fee-free withdrawal period
- Veteran Business Bonds capped at 5%
- Investments are unsecured loans to StreetShares, not tied to any particular borrower or note
- Small borrower base to date
StreetShares is an interesting hybrid platform, offering institutions and accredited investors a platform for investing in small business loans, as well as offering non-accredited investors a 5% return on a 3-year loan used to round out that business financing. StreetShares is open to any qualifying business or investor, but emphasizes a focus on veteran-run small businesses (StreetShares itself was co-founded by a veteran).
StreetShares offers borrowers loans and lines of credit from $2,000-$100,000 and over 3-36 month terms.
Types of investments StreetShares offers
StreetShares has two main categories of investment types. The first, their "Veteran Business Bonds", are effectively loans to StreetShares itself, with a 3-year term and 5% interest rate. StreetShares uses the bulk of the proceeds from those notes to fund their loans to small businesses, but the bonds themselves are not tied to any particular loan. Prospective investors should also note that StreetShares retains the ability to use the proceeds from those notes for other general purposes at their sole discretion. From the offering circular:
The second type of investment is made available via their "StreetShares Pro" platform, and is open only to accredited (and institutional) investors. There investors select individual loans to fund (or select an automated allocation based on borrower grades).
What do you get when investing with StreetShares?
The type of security investors receive depends on the category of investment. For investors in the Business Bonds, they're receiving a promissory note from StreetShares itself, which in turn uses the proceeds to fund loans alongside investors in their StreetShares Pro platform. (They say their target is 10% of each loan, but they may put in up to 50% themselves.) For investors in the StreetShares Pro Platform, they're receiving Borrower Payment Dependent Notes, tied to a specific loan and borrower. (The underlying loan from StreetShares is typically secured with a personal guarantee and a UCC lien on the business.)
StreetShares fee structure
There are no up-front fees associated with the Veteran Business Bonds, and during a 2-week redemption period each year (on the anniversary of your original investment) you can withdraw some or all of your account balance. Withdrawals at any other time incur a 1% fee.
There are also no up-front fees for using the Pro platform, though StreetShares charges 1% of borrower repayments.
Potential returns and cashflow
Investors in the Veteran Business Bonds receive a 5% return. Investors begin earning interest as soon as their funds are transferred to StreetShares, though will incur a 1% fee upon withdrawal (outside of the 2-week annual redemption period). Investors in the Pro platform receive principal and interest payments as the borrower repays.
Breadth of offerings on StreetShares
As of their Reg A+ offering circular (filed in February 2016), StreetShares had funded 317 loans representing about $6M. That is quite small relative to other online lending platforms, potentially limiting the amount of diversification available. Investors in the Veteran Business Bonds should note that they are not investing in specific loans, which could add risk if StreetShares ends up funding a higher proportion of the amount for lower-grade (higher-risk) loans if they can't attract sufficient individual or institutional investor interest.
Regulatory framework and due diligence expectations
The Veteran Business Bonds are offered under Reg A+, which involves a range of SEC requirements, disclosures, and filings.
StreetShare evaluated individual borrower applications and uses a proprietary credit scoring model to rate borrowers into five categories (A-E), with average interest rates between about 13%-28% depending on the grade. Once a loan amount has been approved and graded, it is offered to investors on the Pro platform. Depending on the level of investor interest, StreetShares itself may also fund a portion of the loan. From their offering circular: