Due to their unique ownership structure, cooperatives often have a difficult time finding money to start and operate their enterprise. Here we focus on the different ways you can finance your co-op. It’s important to understand all of your options before deciding which is best for you cooperative.
The initial source of funding for a cooperative is often capital contributions provided by each member as a membership share. Membership share is a term used to refer to the contribution required for a person to become a member of the cooperative. This is also known as equity capital which reflects the member’s ownership in the cooperative. This is also referred to as “equity financing” which is defined as the exchange of equity capital for an ownership in the business. Equity capital is one of the measures by which financial institutions will gauge a business’ potential for receiving loans.
Debt financing is borrowing money that the business will have to pay back. The lender, such as a bank, does not receive an ownership share in the business.
There are also some decent government financing options, the most notable of which is the Small Business Administration (SBA) Loan.
There are many other funding sources that can be well-suited for a cooperative. These include micro-loans, donations, bartering, crowdfunding and more.
Guidance for Approaching Traditional Lenders as a Cooperative
For cooperatives, getting loans from traditional lenders like banks can be challenging. It’s crucial to know the best practices when approaching traditional financing methods before approaching them for financial assistance. Preparation is a key step in both business development and obtaining funding for your business. You need to realistically consider the pros and cons of
Financing Your Cooperative with Securities
Securities law is highly complex and failure to comply with securities regulations may lead to civil and criminal sanctions. Consult an attorney before trying to raise money. Even asking a potential investor for money can be considered a violation of securities law, unless you’re just applying for a regular business loan from your bank. Think
Financing Cooperative Conversions
Financing the conversion of a worker cooperative can be tricky even if it brings tremendous benefits to workers, businesses, and society. To purchase the business they work for, workers generally need to get capital from multiple sources. Here we explore the general considerations, strategies, and sources of financing a cooperative conversion. Each type of financing
