Financing

As with any business start-up, financing a cooperative can be challenging. It often involves accessing capital from several sources, including loans from banks, nonprofits, and governmental sources, as well as owner investment. Member equity investment is particularly important to starting a co-op. The National Cooperative Bank, a financial services company for cooperatives that has been in existence since 1978, outlines a general financing approach.

Cooperatives must have ownership capital to conduct day-to-day operations, to provide the necessary facilities, and to create a base for obtaining external (bank) financing. Members provide this capital through investments, retained earning, member deposits, or subordinated member loans. Member capital is the best source of financing; the more members provide the less the cooperative will need to borrow from other sources. It is also a measure of their commitment to the venture.

Loans may be used to finance working capital, equipment, and buildings. Such financing is available from the NCB Development Corporation. New cooperatives may be able to obtain private or government loans, grants, or guarantees, depending on programs currently available and the specific need the cooperative intends to address. In seeking financing, the cooperative leadership should develop a business plan that describes local demand for cooperative services, details membership support, incorporates marketing, projects cash flow, and anticipates operating results for the next three to five years.