Investors Knowledge Base

Risks Associated with Debt Securities

You Have a Limited Upside: As a creditor of the company, the most you can hope to receive is your money back plus interest. You cannot receive more than that even if the company turns into the next Facebook.

You Do Have a Downside: Conversely, if the company loses enough value, you could lose some or all your money.

Subordination To Rights Of Other Lenders: Typically, when you buy a debt security on Fundify, while you will have a higher priority than holders of the equity securities in the company, you will have a lower priority than some other lenders, like banks or leasing companies. In the event of bankruptcy, they would have the right to be paid first, up to the value of the assets in which they have security interests, while you would only be paid from the excess, if any.

Lack of Security: Sometimes when you buy a debt security on our platform, it will be secured by property, like an interest in real estate or equity. Other times it will not.

Lack of Guaranty: Sometimes when you buy a debt security on our platform, it will be guaranteed by the owner of the business or by someone else. Other times it will not.

Issuers typically will not have third-party credit ratings: Credit rating agencies, notably Moody’s and Standard & Poor’s, assign credit ratings to debt issuers. These ratings are intended to help investors gauge the ability of the issuer to repay the loan. Companies on our platform generally will not be rated by either Moody’s or Standard & Poor’s, leaving investors with no objective measure by which to judge the company’s creditworthiness.

Interest Rate Might Not Adequately Compensate You for Risk: Theoretically, the interest rate paid by a company should compensate the creditor for the level of risk the creditor is assuming. That’s why consumers generally pay one interest rate, large corporations pay a lower interest rate, and the federal government (which can print money if necessary) pays the lowest rate of all. However, the chances are very high that when you lend money to a company on our platform (buying a promissory note is the same as lending money), the interest rate might not compensate you adequately for the level of risk.