Sustaining

Making your investment is only the beginning. Now that your dollars are where you want them, it’s time to monitor how they perform and consider next steps for sustaining your practice of local investing into the future.

Monitoring Investments

Reasons to monitor your investments:

Real-time updates: Maintain a good relationship with the investee and you’ll get updates on how things are going with the business. You can share in the successes and offer help with the challenges. Staying engaged early, when things are going more or less as hoped, helps build a foundation for continued communication and openness should the plans hit a shaky patch.

Financial checks: Periodic financial statements show you how actual business results compare to what you expected during due diligence. This gives you a window into what’s happening at the business and how it affects your investment. Understanding how business results unfold over time also helps you get better at due diligence.

Know about trouble: If the business runs into trouble, hearing about it promptly helps you mobilize a solution sooner. It’s not necessarily your job to create solutions, but you may have connections, knowledge, or experience that can help. The ability to directly affect your investment positively is a unique aspect of local investing for most people.

Timely payments: Ensure the investee is upholding their side of the agreement. You should receive payments on time and in the correct amounts. If you aren’t, reach out to find out what’s going on. Usually, it’s not a big deal, but sometimes this can be an early warning sign.​

A Note on Unsuccessful Investments

When investments are good, life is easy, but troubled investments can be challenging. When borrowers can’t generate cash flow for loan payments, they may have to default. Generally, it’s in your best interests to renegotiate a more sustainable payment plan—called “restructuring” the loan. This may involve delaying payments, lowering interest rates, and/or reducing payment amounts.

Restructuring typically results in less financially attractive terms for you as an investor. However, if the business person is sincere about getting back on track and their renegotiated obligations are truly workable, results will almost certainly be better than turning to the legal system.

We’ve observed that business owners are more motivated to honor agreements with local investors compared to banks or credit card companies because they’re part of the same community and often friends and neighbors. This important factor helps lower local investment risk and makes total loss relatively rare.

Sustaining the Practice

Now that you’ve done it once, we hope you have many ideas on where and how to locally invest differently—perhaps more successfully for your finances and/or values. Write these thoughts down as they come, so when you determine that you are ready to make another investment, you can refer back and take action on your past learnings.

What to reflect on and document after an investment:

  • What would you have done differently?
  • What would you do again in your due diligence process?
  • How did you decide how much to invest? Would you invest differently next time?
  • What worked in your engagement with the issuer? What would you like to try next time?
  • What stood out to you from the process that you would like to consider before making another local investment?
  • Review your personal finances 

Reassess where you are and whether you have the money to invest. If you do, revisit your process for determining how much would be appropriate to invest.

Feeling confident in sustaining your individual local investing practice?

Consider activating local investing in your community by exploring our resource pages for Community Builders.