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

Community bonds are fixed-income investments issued by nonprofits, charities, and cooperatives. Unlike publicly traded corporate or government bonds, community bonds are private investments. That means they are not listed on a public exchange and do not have a credit rating from an independent ratings agency.

That doesn’t make community bonds inherently riskier, but it does mean investors take an active role in evaluating whether a bond is right for them.

When an organization is preparing to offer community bonds to investors, Tapestry supports them through preparing an offering package, a set of detailed documents with information about the organization, the project they’re aiming to finance, and the investment. It’s designed to help investors clearly understand the impact, opportunity, and risks associated with buying a bond.

Here’s a rundown of what the offering package helps you understand:

The organization

Every investment begins with the organization behind it. In the offering package, look for information about the organization’s mission, history, leadership, governance, and financial track record. This will help you determine both your level of confidence in the organization and its alignment with your own values.

The project

The offering package should clearly explain why the organization is raising capital — and how exactly they’ll put your money to use. For example, the organization may be buying a residential apartment building to keep rent affordable for tenants. Another may be constructing renewable energy infrastructure like solar panels. A third organization might be buying the building where they operate a community music venue.

Use the organization’s offering package to assess whether the project aligns with your own values, whether it has a clear business case with demonstrated demand, and whether the assumptions behind its success seem reasonable.

The repayment plan

One of the most important questions for the offering package to answer is where the money to repay investors will come from. Organizations typically repay investors through operating revenues — for example, rental income earned by an affordable housing provider or ticket sales by a nonprofit arts venue. An offering package should explain how the organization plans to earn revenue, show financial projections that support the plan, and explain any diversification strategies or contingency plans.

The risks

Every investment involves risk, and community bonds are no exception. Because community bonds are private investments, there is no independent credit rating to summarize the issuer’s financial strength. Instead, investors should evaluate the information provided in the offering package to decide whether the risks are appropriate for their own circumstances. Ultimately, even though issuers create careful risk mitigation strategies, community bondholders could lose the money they invest.

Some risks relate to the project itself, like construction delays or cost overruns. Others may relate to the organization, including changes in funding, economic conditions, staffing, or operating performance. An offering package should clearly explain the risks and the organization’s plans to manage them.

Transparency is an important part of issuing community bonds, and issuers take this responsibility seriously.

The investment terms

All offering packages should clearly explain the bonds’ terms. Most organizations offer a series of bonds with different terms to meet a variety of investors’ needs:

  • Interest rate: The money you’ll earn on your investment, expressed as a percentage.
  • Whether it offers simple or compound interest: Simple interest is calculated only on your original investment, while compound interest earns interest on both your original investment and any interest already earned (allowing your investment to grow faster).
  • Maturity date: When your investment reaches the end of its term and the issuer is scheduled to repay your original investment (also called principal).
  • Payment schedule: When you’ll receive interest payments — typically either annually or at the maturity date.
  • Minimum investment amount: The minimum amount of money you must invest to purchase the bond.
  • Security: You should also understand whether the bond is secured by specific assets (like a building or major equipment) or is unsecured — if a bond is secured, it means that if necessary, the organization will sell the asset and use the money to repay community bond investors.

Ask questions

If any information is unclear, ask questions before investing. Issuers welcome discussions with prospective investors and can often provide additional information to help you make an informed decision.

It’s one reason investors say they like the community bond model—bonds are offered by groups of real people who share their values and genuinely want to connect with their community.