Please note: The information in this guide does not constitute legal, financial, or investment advice. This guide is meant as education only.

For a long time, impact investing was primarily the domain of institutional investors, foundations, and high-net-worth individuals, but today that’s changing.

A growing number of everyday Canadians are interested in adding high-impact investments to their portfolios. They want to know where their money is going, what it’s funding, and whether their investments truly align with their ethics.

Community bonds are high-impact investments that allow anyone to invest in what matters to them. But how do they work? We’ll break it down for you.

What exactly are community bonds?

Community bonds are loans issued by nonprofits, charities, and cooperatives to raise money for projects that benefit the community, usually major infrastructure projects like buying a building in which they can offer services or programs.

Instead of borrowing the money from the bank, these organizations borrow directly from supporters and community members. Investors purchase bonds and in return, the organization agrees to repay the principal investment plus interest over a set period of time.

Community organizations across Canada offer community bonds for sale to fund projects like:

  • Affordable housing developments
  • Renewable energy installations
  • Music venues, arts workshops, and cultural spaces
  • Community sports and recreation facilities

How it works

Here’s a simple, hypothetical example: A nonprofit community centre wants to raise $2 million to build a recreation centre. Instead of taking out a large bank loan, it offers community bonds to supporters.

You purchase a $1,000 bond with a five-year term and a 3% annual interest rate.

Over the five years:

  • The organization uses your investment to help finance the project
  • You receive interest payments annually
  • Once the recreation centre is operational, membership fees bring in revenue
  • At the end of the five years, the organization repays your original $1,000

Terms vary depending on the organization’s project, so you may also see bonds that offer simple interest paid at maturity (when the term of the bond is over instead of every year) or compound interest (interest earned not only on the original investment, but also on the interest added each year). Maturity dates can range from one to 10 years and beyond. And interest rates vary depending on the project and the broader economic environment.

There’s no secondary market for community bonds, meaning you can’t resell a bond on a market like the stock exchange. It’s also important to note that any early redemption is always negotiated between the issuer and the investor, and may not be possible.

What community bond investments fund

Typically, community bond investments are used to finance hard assets, like real estate or major equipment, that help the organization expand and generate sustainable revenue.

Some common examples include:

  • The purchase of land or buildings to develop affordable housing
  • The construction of renewable energy installations
  • The purchase or renovation of buildings to use as community hubs, arts venues, co-working spaces, and more

Projects financed by community bond investors are high-impact, often local to the investor, and build resilient, thriving communities. They allow everyday Canadians to invest not just in markets, but in the future of their communities.