It might seem like there are limited ways to find funding for your business. Other than the conventional ways that include debt financing, equity financing and government financing there are alternative ways to raise capital including donations, micro-loans and bartering and more!
Nontraditional Loans
Micro Loans
While traditional banking loans are sometimes difficult for cooperatives to obtain, an alternative is a micro loan. A micro loan is a small, low-interest rate loan, supplied through various sources. Typically, organizations offering microloans demonstrate a social consciousness, understanding the challenges that community entrepreneurs encounter while seeking financial support.
Example:
Team Works, a cooperative home cleaner based in San Jose, had two successful Kiva Zip campaigns in 2012. They were lent $10,000, enough working capital to be able to provide health care for their members and expand their membership. This article from Grassroots Economic Organizing gives a good overview of the process they went through to find a trustee and promote the loan. Though these loans can be very demanding, Kiva Zip requires the first repayment within one month of disbursement, they are zero interest and can work well for co-ops that have outside support.
Loans with return of principle only
Return of principle only means giving back the money that the funder gave, and not offering a return on the investment. Not offering a return on investment means that the business will not offer anything more than the original investment amount, such as an additional dividend, interest, or appreciation in value. It is important to note that, in California, this is likely considered to be a security, so you should proceed with caution and consult with a lawyer if you choose to utilize this funding method.
Donations
Donations are when people give the business money without the expectation of receiving anything in return. Often times co-ops will look to the community and ask for donations to raise capital.
It is important to note that only donations to non-profit co-ops are tax-deductible.
Crowdfunding
Many entrepreneurs are using so-called crowdfunding websites such as Kickstarter.com and Indiegogo.com to raise money for various enterprises.
Example:
The Isla Vista Food Co-op launched Project We Own It in 2012 as an effort to purchase its property. The National Cooperative Bank lent them $1.2 million for the purchase and they successfully raised $200,000 for the down payment through crowdfunding.
Product Discount
Another way to raise capital for your business is to charge a membership fee and offer product discounts in exchange. REI provides an interesting model for product discount funding. REI is a consumer cooperative that sells memberships to its customers. At the end of the year, REI members receive a “dividend” based on the amount spent at REI during the year. This “dividend” can then be used to shop at REI.
Bartering
One unique and often overlooked way to gain needed resources is to avoid money altogether for certain goods or services your business needs. Bartering, or exchanging services or goods directly, is a means of obtaining resources. If you need to raise money to pay for something such as web design or compostable cups, consider whether you might be able to barter your goods or services to get what you need. This is not a traditional means utilized by businesses when financing their business; however, it can be utilized as an alternative way to obtain much-needed resources for your business. However, you should note that bartering may be subject to taxation.
Pre-selling
Pre-selling for example is when a business might pre-sell gift certificates that are redeemable for the product or service the business will offer once it’s funded. For example, you might sell a $150 gift certificate that a customer can redeem at your business but only charge $100 for the gift certificate. Charging less than the value of the certificate gives the buyer an extra incentive to purchase the gift certificate.
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