Own a Small Business? Here's One Smart Investment You Should Consider

It's an investment that could really pay off.

If you own a small business, you may need every last dollar you take in to sit in your checking account so you can cover expenses like inventory, payroll, rent, and utilities. But if you're in a position where you don't need every dollar to cover immediate expenses, then it pays to consider investing some of your business income, the same way it often makes sense for individuals to invest money they aren't using right away.

Now there are different assets you could invest in as a small business owner. But in the course of investing, you may want to limit your risk. After all, you never know when business might slow down, so you don't necessarily want to risk losing too much money in an investment portfolio.

For the most part, however, there's no such thing as a risk-free investment. If you buy stocks, their value might drop. And the same thing can happen if you invest money in bonds issued by different companies.

But there's another type of bond available to invest in where you won't have to worry about losing money on its face value. And this specific type of bond happens to be paying a lot of interest right now, making it a potentially wise choice for your business.

It pays to look at I bonds

Over the past year, many individual investors have purchased I bonds to benefit from the high interest rates they've been paying. If you're not familiar with I bonds, they're government bonds whose interest rate is tied to the rate of inflation. Because they're government-issued, you're not running a big risk of losing money. If you purchase $5,000 of I bonds, you won't have to worry about them being worth less than $5,000 in the future (whereas if you buy $5,000 in stock, that position may only be worth $3,000 down the line).

Since inflation is so high right now, I bonds are paying 6.89% interest through April of 2023. That's a really generous return.

Now one thing you may already know about I bonds is that you're limited to purchasing $10,000 worth of these bonds each calendar year. If you already maxed out your $10,000 in I bonds this year in your own name, that doesn't mean you're done, though. If you own a small business, you can purchase I bonds on behalf of your company, which counts as a separate transaction and limit (the same way a spouse of yours, for example, could go out and buy $10,000 of I bonds this year, even if you already bought your $10,000).

Are I bonds right for your small business?

One drawback of I bonds is that you're required to hold them for at least a year. And if you cash them out before five years have gone by, you'll lose some interest on penalties. You may be hesitant to tie up your business's money for any extended period of time, which is understandable. And if that's the case, you may want to choose a different investment.

But if your business already has some money sitting in cash and you're doing well right now from a cash flow perspective, then it could make sense to put some money into I bonds as a longer-term investment. Even though I bonds aren't paying as much interest as they were earlier this year, a 6.89% return is certainly impressive, especially when you account for the risk factor (or lack thereof).