When Princess Robinson takes her son to school at eight o’clock in the morning, there’s always a line of people waiting to buy their morning tamales and coffee from a lady selling on the corner. Later in the day she might come across folks barbecuing and selling plates out on the block.
Robinson lives in North Richmond, a 1.5 square-mile unincorporated area of Contra Costa County, California, at the northern end of the Bay Area, nearly surrounded by the City of Richmond proper. Predominantly Black and Hispanic, in normal economic times North Richmond’s unemployment rate stubbornly hovers around 22 percent, with a median income of around $26,000. Located just west of — and therefore downwind from — a major Chevron oil refinery, North Richmond has long suffered from higher child asthma rates and other chronic health issues related to air pollution than other parts of Contra Costa county.
But as they do in neighborhoods like these in cities across the country, people find a way. “I know so many people that are hustling in my community but they’re not legal,” says Robinson. “Those were my businesses growing up here.”
Coming up among that hustle fed the entrepreneurial bug in Robinson. For years she wanted to start her own record label. She even went to business school to learn how. But after graduating in 2019 she found her true calling — incubating and investing in cooperatively owned businesses, as a project officer at Cooperation Richmond.
“I’m not just opening up a restaurant or food truck, I’m helping someone open up a food truck or a restaurant and someone else open up a grocery store,” says Robinson. “I get experience in all these different sectors and I’m just like ‘oh my god this is my dream job and I never knew it existed.’”
Robinson recently ushered through her first investment to the finish line — a Black-family-owned food business. Unfortunately, for pandemic-related reasons, it had to delay its launch, but it was a big moment for Robinson nonetheless. It took about a year to get there. And now she’s already got three more possible investments in the pipeline.
“Going through the process for the first time ever it was frustrating at times because of all the back and forth, but it was great for me because now I know what it takes and next time it’ll go easier and faster,” says Robinson. “I wouldn’t have had this opportunity anywhere else. That’s just being real. I wasn’t qualified, I wasn’t experienced.”
Because of their unorthodox ownership structures and management practices, cooperatively owned businesses don’t fit neatly into most lenders’ and incubators’ boxes. But Cooperation Richmond is a member of Seed Commons, a nationwide network of loan funds and incubators that specialize in supporting and investing in cooperative businesses. Working as a group, they collectively share the burden of everything from fundraising to support their work to vetting possible investments. It’s a network built largely by and mostly for worker-owned cooperatives.
“This is about using our collective power to create a new financial institution,” says Kate Khatib, co-director of Seed Commons and a worker-owner at Red Emma’s, a cooperative restaurant and bookstore in Baltimore. “We’re fundraising collectively, raising the investment capital collectively and figuring out how to deploy that capital most effectively in our individual communities.”
Since inception in 2016, Seed Commons has enabled its members to make more than a hundred loans so far, adding up to more than $10 million. The first loan made through the network was to Baltimore ice cream maker Taharka Brothers, which recently celebrated the completion of its conversion from a nonprofit social enterprise to a fully-fledged worker-owned cooperative.
Seed Commons has roots in the frustrations that Red Emma’s went through several years ago, when the co-op needed financing for a move to a new location. Already an established business with deposits held at several banks, Red Emma’s went to all of them, and none was willing to finance on terms that worked for the co-op.
For example, all of Red Emma’s banks wanted at least one person from the co-op to sign a personal guarantee. It’s a document that banks say they need to reduce the risk of making a small business loan, but it means that if the business fails and the loan goes into default, the bank can repossess the owner’s house or car or other assets that the bank can sell off to recoup at least some of the debt. But for worker cooperatives, the whole point is for the workers to share ownership equally and reduce the risk of business ownership to each worker, so it doesn’t make much sense to put one or two people on that potential hook.
And the worker-owners may not have any assets that would satisfy a bank anyway — especially if they are Black folks from North Richmond or Baltimore. As a legacy of historical racism, white households today have a median net worth eight times higher than Black households and five times higher than Hispanic households, according to the Federal Reserve.
Red Emma’s tried asking each of their banks for a smaller loan, reducing the risk for each bank. But a small loan requires the same transaction costs for a bank as a large loan, so banks have less incentive to make smaller loans. None of Red Emma’s banks were interested in making a smaller loan.
Searching for a solution, Red Emma’s reached out to The Working World, a loan fund that incubates and invests in worker-owned cooperatives. Based in New York City, the loan fund had made some loans nationally but was finding its intense incubation model hard to extend to other cities.
But Red Emma’s didn’t need incubation, in fact it was already looking to help others start their own worker-owned cooperatives in Baltimore, through the Baltimore Roundtable for Economic Democracy, a local coalition of worker cooperatives and cooperative business advisors. So they hatched a plan instead to create what they eventually named Seed Commons, bringing together worker co-op incubators and loan funds in cities across the country.
“Creating your own loan fund, all of the compliance issues, all of the fundraising, all of the challenges, we couldn’t believe how much it would take,” says Kristen Barker, executive director of Co-op Cincy, a Seed Commons member in Cincinnati. “We were founded in 2011 and we wanted to start making loans to worker co-ops ourselves but we just put it on the backburner until the opportunity to join Seed Commons.”
Co-op Cincy to date has made 13 loans totaling nearly $300,000 to worker-owned cooperatives and their members in Cincinnati. The largest was a $130,000 loan to Our Harvest, a worker-owned urban farm cooperative just across the river in Newport, Kentucky.
Most Seed Commons network loans are small, a few thousand dollars in working capital here or maybe $15,000 or $20,000 to build out a food truck there. It’s strategic — insulating the cooperatives from larger debt until they are up and running or until they have more experience operating and managing themselves. As the co-ops grow and repay earlier loans, second or third loans tend to be larger amounts.
Rich City Rides, a worker-owned cooperative bike shop in Richmond, has seen a sp0ke in demand as the pandemic has more Bay Area residents spending time outdoors. The bike shop cooperative has already repaid two loans since Cooperation Richmond helped it launch five years ago. Robinson says they’re now considering making another loan to capitalize on the spike in business.
“When I’ve been taking my kids for walks in parks and trails, it’s all packed,” Robinson says. “Rich City Rides also does a lot of community building around cycling, doing organized bike rides with fifty to a hundred people at a time.”
The Seed Commons network supported its first $1 million loan in 2020, to Obran Cooperative, a worker-owned industrial conglomerate in Baltimore. The loan helped finance Obran’s acquisition of a property management company and two residential properties.
The Baltimore Roundtable for Economic Democracy, which originated the $1 million loan to Obran Cooperative, would not have been able to make that loan were it not for the liquidity made available through Seed Commons. Each local member group has the option to raise funding on their own to make loans, but doing so takes a lot of relationship building and cultivating of local investors, which isn’t impossible but it almost never matches up with the timing of when a worker cooperative needs capital. Seed Commons is always on standby to provide liquidity for loans when network members need it.
The Seed Commons network also helps vet potential loans and advise co-ops, which is particularly helpful when the local loan fund officer isn’t familiar with certain industries. Khatib often spends extra time helping peers across the country vet food businesses. Barker says it was also helpful as part of the incubation process to connect a childcare co-op in Cincinnati to other childcare co-ops that Seed Commons has supported in other cities.
When local groups come to Seed Commons for liquidity to advance a loan, the network’s sustainability committee also provides another layer of advising and approval. Robinson’s initial request was to finance a food truck for her first business, but working with the sustainability committee, that was pared down to a smaller working capital loan to get the businesses started as delivery-only until the worker-owners get some experience running a business together. They plan to come back later for a food truck loan after they build up a revenue base.
“Going through that process with the members, we realized ‘okay let’s go back to the drawing board and start off small and work our way up,’” says Robinson.
The Seed Commons network also makes its loans using royalty-based financing — which it likes to call “non-extractive financing.” It means that the borrowers make payments as a percentage of monthly profits — if there’s no profit in a given month, they don’t need to make a loan payment. Not only is it extremely friendly for the underlying borrower, it also means the local loan funds are strongly incentivized to provide adequate incubation and other support to ensure the success of the underlying co-ops.
Around half of the Seed Commons members also get at least 75 percent of their operating budget through the network, according to Khatib. In an annual process, the network members collectively allocate available operating funds from grants and donors.
Some of the same individuals and foundations who fund operations for the Seed Commons network are also committed to lend money to the network when it’s needed to advance loans through local members.
“We’re really only going to take in capital that works,” says Khatib. “We’ve been fortunate to find funders and investors who’ve been willing to work with us in very favorable ways to build a structure that we believe in, that people feel comfortable investing in but keeps the control in the hands of the people in the network.”
The only thing Seed Commons doesn’t have is what local loan officers like Robinson has in spades — relationships with potential co-op members and an intimate knowledge of their target markets.
“You could have bad credit, you could have [criminal records] on your background, that’s another reason a lot of people feel like they can’t go to banks,” says Robinson. “We don’t dismiss anybody. You come in here looking for help with your credit — I am you. I need help, too. I’m in the same boat. I didn’t know anything about credit ratings till I was 27. That’s what makes coming to Cooperation Richmond more comfortable because the project officers are people from the community.”
This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.