Raising financial capital is an important step when developing a co-operative business, and it remains a challenge once that business is up and running. Over time, the co-op will need to invest in its business — upgrading equipment, training staff, or expanding operations. This will require funds, which may exceed the co-op’s yearly budget. Fortunately, co-operatives have a few different options for raising money (or “capital”) that will allow them to make these investments. The method it uses to secure these funds should reflect the co-op’s share structure, debt load, and financial health. Here are four ways for an operating co-op to raise capital.
Co-operatives that need to raise capital can borrow funds from their members. They should create an individual agreement between the lender and the co-operative that outlines specific arrangements that both parties agree to. The co-operative should also outline the maximum interest paid on member loans in its bylaws based on provisions in co-operative legislation.
Co-operatives can access debt in multiple ways, including using credit cards, lines of credit, mortgages, and micro-finance. In all cases, creditors will lend funds with the understanding that the money will be paid back with interest, and the organization’s assets may be used to secure the loan. It is important to be very cautious when taking on debt, as interest rates, revenue streams, and repayment periods may affect the co-operative’s ability to repay.
Various governments, big businesses, and granting foundations make funds available to help businesses develop and expand — thus raising a co-op’s capital Many of these funds are project-based and tied to an expected output or outcome (e.g. installation of a fire suppression system). It is often easier to access grants once an organization is up and running, rather than in the development stage, as there is greater certainty of the co-operative’s financial health and likelihood of success. It’s important to find the grant that fits with the project you want to pursue rather than shaping your project to fit with a specific grant.
For-profit co-operatives (those that share their surplus with members) have the option of retaining a portion of their earnings. The amount they retain should be a percentage of a dividend and must be consistent for all members. This money will eventually have to be returned to the member later or when the shares are redeemed. Retaining earnings may not be a popular decision among members (who may prefer to receive these funds) but it is an easily managed source of ongoing capital.Was this useful?
7 people found this useful.