Please note: The information in this guide does not constitute legal, financial, or investment advice. Issuers should obtain independent legal and financial counsel before proceeding with any securities offering.

Community bonds might be a totally new term to you—and that’s totally okay! Many organizations already meet the requirements to raise this kind of capital without even knowing it. At Tapestry, we’re here to break it down for you.

The basics: What are community bonds?

A community bond is an interest-bearing loan made by an individual or organization to a charity, nonprofit, or co-op for a fixed period of time.

It’s a private debt security allowing mission-driven organizations to raise capital directly from supporters. Unlike a donation, a community bond is repayable. That means the investor earns interest and receives their principal back at maturity.

Terms are set by the organization raising money—the organization decides on the interest rate, repayment schedule, and whether or not the bond is secured against a real asset like property (many are). The investor purchases a bond if they agree to these terms. Organizations usually offer a series of bonds with different terms, often with a range of investment minimums and term lengths to appeal to different types of investors.

Any resident of Canada can purchase a community bond. The majority of bondholders are retail investors, or everyday Canadians investing their personal money, but organizations like foundations, other nonprofits with reserve funds, and local businesses can (and do!) also invest.

Issuers, or organizations issuing bonds for sale, use a variety of ways to reach interested investors, from presenting at community events to digital ads and more. Community bonds appeal to those who want to align their investments with their values or finance a specific project that’s meaningful to their community.

How the money is used

Many mission-driven organizations reach a point where demand is growing or expansion opportunities arise, but grants and donations alone aren’t enough—they need access to repayable capital.

Typically, community bonds are used to finance hard assets, like real estate or major equipment, that help the organization expand.

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

The money raised allows the community organization to purchase assets that in turn generate income, like rental revenue or other operating surpluses. This revenue allows them to make interest and principal repayments to their bondholders (or investors). All of this helps organizations grow sustainably, since once bonds are repaid, they have income-generating assets that can support ongoing operations or future projects.

Why organizations choose community bonds

These kinds of projects are complex and often require several sources of funding, from bank loans to government grants and donations. But many organizations choose to finance at least part of their projects (typically between 10% and 50% of the total project cost) using community bonds because they’re looking for a values-aligned alternative to traditional financing.

A few key factors include:

  • They can set the terms (interest rates and repayment schedules) that work for their project
  • They can offer returns directly to everyday Canadians, not just to big commercial lenders
  • It’s an opportunity to grow their community of supporters, which can in turn attract support from governments or other funders
  • Community bonds help organizations diversify funding sources, reducing overreliance on just one lender
  • It’s a way to reengage lapsed donors, those for whom donation no longer makes sense but they’re happy to lend to the organization
  • They can offer bondholders the option to donate the interest on bonds, which can lower the organization’s cost of capital

Issuing community bonds: The process

For eligible organizations with the right project in mind, community bonds can be a powerful way to grow while aligning their financing with their organizational values.

The first step to issuing community bonds is assessing the feasibility of a raise, by building a financial model and exploring prospective investors’ appetite for the organization’s bond offering. Then, if a raise is feasible, they move on to setting their bond terms, creating an offering package, and making plans to market and sell bonds. Afterward, interest payments are made according to the terms, documents like tax slips are issued to investors when needed, and it’s important to keep investors informed about impact, too—how their money is being put to use for good.

Tapestry supports organizations with templates and best practices throughout planning their campaigns, and we administer interest payments and tax slips for the lifetime of the bond. Our mission is to make the community bond process as accessible as possible to eligible, high-impact community organizations.

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