A guide to customer bonds

Customer bonds are a fairly new, innovative way to raise money from the people who know and trust you best – your customers. The idea is that you borrow money from them over a short period of time, say 3-4 years, and pay interest on that loan during that time.

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How it works

You issue a non-transferable, non-convertible saving bond for a period of say, three years. Then you invite your customers – and others – to invest a fixed amount in return for receiving interest on the money borrowed and the repayment of the bond at the end of the period. Your business then uses the money raised to expand your business – Hotel Chocolat, the chocolate retailer, raised £3.7 million through the launch of a three-year “chocolate bond”, which it will use to expand its factory and open new shops, for example.

Who can borrow

Customer bonds work best for established businesses with a strong track record, a loyal following for its products and an established customer base.

How much can you borrow

In theory, as much as you want. Caxton FX, a foreign exchange provider, managed to raise £3.9 million by issuing a bond. In practice, you need seek professional advice to set the figure at a level which is likely to be achievable.


Customer bonds are a great way to tap into an unused source of funding, which can enable to you bypass the banks completely. Done right, it can strengthen the loyalty of your customer base and help to create a real buzz – and lots of positive publicity – about your business.


By their very nature, customer bonds are a very public way of going about raising funds – and from people whose support is the very lifeblood of the business. If you don’t manage to raise the money you hoped for, it will not only be embarrassing and annoying; your failure to garner enough support from customers could seriously tarnish the image and reputation of the business brand. Also some people might question whether – and why – a bank turned you and your expansion plans down first.

Things to consider

It can be quite time-consuming setting up a customer bond, and it can cost quite a lot in advisors fees and be somewhat complex to negotiate the regulatory issues – certainly far more effort than simply applying for a bank loan. So you need to think hard about why you are doing it – and whether it will enhance or detract from the message of your core business. Will the quirkiness and innovation of a customer bond appeal to your customers? Or will they regard it with suspicion and wariness? Will the idea of it sit well with the image people have of your business?

The practicalities

Getting the numbers right is vital. Each bond needs to be priced within reach of the customers it is designed to attract – £1,000 has so far proven to be a good entry point.

Case study

Will King, the founder of King of Shaves, which makes shaving products, successfully raised £627,000 from around 400 customers in 2009 by way of a ‘shaving bond’. Customers could invest between £1,000 and £5,000 in a non-transferable, non-convertible three-year bond which paid them 6% interest a year and shaving products worth £30-60 a year. The secret to successfully raising cash this way, says Will, is to have already established a strong following amongst customers who trust you and your products – and a strong underlying business which will be able to repay the bond at the end. He says: “It’s a great way to bypass the banks and go straight to your customer base to raise money.”

Top tip

As well as paying interest on the loan, entice customers and investors to sign up by offering them some freebies too. Will King provided his investors with exclusive King of Shaves products for the duration of the bond, while Hotel Chocolat sent investors a monthly chocolate tasting box.

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