How a second helping of Burrito Bonds offers a tasty 8% return
THE Burrito Bond is back. Mexican fast food restaurant group Chilango has launched its second retail mini-bond – dubbed Burrito 2 – with a promise of 8 per cent interest a year for four years on a minimum investment of £500.
It is a mouthwatering rate of return but it is not without risk. The 11-strong Chilango chain was set up in 2004 by Eric Partaker and Dan Houghton, both former employees of tech phenomenon Skype. On Friday they had already raised more than £1million. The proceeds will be used to fund expansion of the largely Londoncentred operation.
On top of the attractive annual interest, there are investor perks of free burritos and guacamole. Investors who spread the word through a ‘refer a friend’ arrangement get even more freebies.
Depending on sign-up numbers, introducers can earn anything from a box of salsa, free online Spanish lessons or even a trip to Mexico.
The firm’s previous four-year bond was launched in August 2014 and paid the same annual interest. It raised more than £2million from 700 investors and met the interest payments on time and in full – plus investors were repaid capital.
But wannabe investors this time around should not be blinded by gimmicks – however attractive – and do their homework. Mini-bonds come with a wealth warning. The high rates of interest are necessary because investors are vulnerable if the borrowing company gets into financial difficulty. Bondholders are at the back of the queue of creditors if the company folds. Patrick Connolly, of financial advice firm Chase de Vere, says: ‘Unlike savings accounts, investors in such bonds cannot fall back on the Financial Services Compensation Scheme if it all goes horribly wrong.’
Investing in just one company is also fraught with peril. The bonds are not traded on an exchange, making it tricky to access cash until the bond matures.
Connolly says: ‘The interest is attractive and would-be investors may feel reassured by the previous bond paying in full. But this is no guarantee of success second time around. The restaurant business is extremely competitive.’ Chilango has an annual turnover of just over £10 million and in the last financial year ending March 2018 made pretax losses of £1.4million. But cofounder Eric Partaker says sales are strong, up 5.3 per cent so far this year. Apply before 2 December at chilango.co.uk/burritobond.
Another recent mini-bond – the Sanctuary Bond – has its eyes on philanthropists rather than foodies. The bond offers investment terms ranging from three to 15 years with the money raised to be spent on buying and renovating properties to let to the ‘hidden homeless’ – such as those escaping domestic violence.
Issued by Equfund, a community benefit society, the minimum investment is £1,000. Investors can choose to either receive no interest or alternatively annual interest based on the Consumer Prices Index – calculated at each anniversary of the term. As a gauge the index is currently 2.7 per cent. Find out more at equfund.com.
Investors looking for an alternative bond which can be traded can opt for one from affordable homes group Heylo. The minimum investment in its ten-year inflation-linked bond is £2,000. For more details, see heylohousing.com.