Ways to invest in local businesses

Investing in a local enterprise can be a way to make your money grow while also supporting and enabling your immediate community. Investing on a local level strengthens community ties and increases the number of ways that your investment can benefit you and those around you. Not only might you make a direct profit you’ll also be helping to make your local area more prosperous, resulting in better opportunities, amenities and facilities and an overall higher standard of living for all.

Enterprise zones

The Welsh government is very much aware of the situation, which is why they have set up eight different enterprise zones across the country. They include Port Talbot Waterfront and Haven Waterway in the West Wales area, as well as Snowdonia and Anglesey in the north-west. Enterprise zones are designed to encourage existing businesses to relocate to them and new businesses to thrive by providing government support and infrastructure, property and development opportunities, and financial incentives.

Understand finance

Investment decisions need to be guided by shrewd financial knowledge. Studying the way the stock market works and following financial and business news closely is essential. You can also subscribe to feed data from The Hammerstone for up-to-the-minute financial news, expert discussion with professional traders and the latest proprietary index levels.

Blogs, podcasts and websites can also provide useful information on financial investing and it’s best to follow more than one so as to get a balanced perspective on the factors that could affect your decision.

Debt or equity

There are two main ways to invest in a small business. You could either lend the money outright, at an agreed interest rate, or you could buy shares in the company, either formally if it is floated on the stock market, or by becoming a partner in the firm. These two options are generally known as debt and equity investments respectively.

Buying in

If you make an equity investment you provide capital (cash) for the business to get started or expand its operations. In return you get a stake in the business’s future success. If they do well, so do you. Of course, you also run the risk of losing your money if the business fails. Even if the business is staying afloat its losses may be greater than its profits for a period, and you may bear the brunt of that, however,if things go well you could be entitled to a profit share or dividend.

Lending money

A debt investment or loan is usually more straightforward. The business gets the money it needs in order to go forward, and will eventually pay you back with interest, either when the loan is repaid or at regular intervals. If the company fails, paying back loans will be prioritised over buying out shareholders, so in a sense that is the safer option.

In both cases you may also have a say in how the company is run, although that isn’t always the case and you might prefer to leave such decisions to the original owners. Either may, investing in a local business is a great opportunity to put your money to work and to support your local community.