The Bottom LineThe Bottom Line

The Co-op With Forty Years of Making Loans to Co-ops

Most banks and financial institutions are built for conventional businesses, not cooperatives, which means co-ops have a hard time accessing the money they need to grow.

Red Emmas, a worker-owned restaurant/bar/bookstore in Baltimore, is a member of Shared Capital Collective. (Photo by Oscar Perry Abello)

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At Shared Capital Cooperative, a Twin Cities-based loan fund, Executive Director Christina Jennings rattles off what the fund has in its pipeline. About a dozen loans were recently approved, she says, another 16-18 in the final application phases, and another 25-30 leads that are in active pre-application conversations with her team.

“I’d say two-thirds of those are worker co-op projects, which is a huge change from where we were in 2016,” Jennings says. “Some are start-ups, some are conversions [into worker cooperatives] or expansions — groups needing to borrow to get to the next stage. They’re all around the country. That’s really exciting to see that kind of shift so quickly, and it’s not that the other projects have gone away, it’s that these kinds of projects are growing.”

Shared Capital Cooperative is riding a worker co-op wave of sorts. Just in the past few months, Illinois, Colorado, Massachusetts, Maine and Berkeley, California, have all announced policies or new programs to support worker cooperatives, adding to others over the past few years. But access to capital remains a key barrier for worker cooperatives. Shared Capital isn’t the only loan fund that lends exclusively to cooperatives, but it offers one model for providing capital to cooperatives that’s tried and true — Shared Capital celebrates its 40th birthday this month.

As a cooperative itself, things run a little differently at Shared Capital Cooperative. Only member cooperatives may borrow from Shared Capital, and the borrowers are also the investors. Since 1979, Shared Capital has made more than 850 loans totaling $50 million to cooperatives in 30 states. In 2018, the cooperative made 17 new loans totaling $2.1 million.

Broadly speaking, member-owned financial cooperatives are fairly common — more than 100 million people are members of the roughly 5,000 credit unions in the United States. But even at credit unions, while members elect and sit on boards of directors, members aren’t intimately involved in approving or reviewing every single loan that each credit union makes. At Shared Capital Cooperative, they are.

There’s pros and cons that go along with involving members in almost every loan approval.

On the one hand, cooperatives seeking a loan from Shared Capital don’t have to explain what a cooperative is to puzzled loan officers — a key barrier in particular for worker cooperatives.

For cooperatives located in predominantly low-income urban areas — and perhaps owned by workers who live in those areas — it can be a double strike against you to walk into a bank as a cooperative in addition to being predominantly black- or Latinx-owned. About 80 percent of Shared Capital’s lending in 2018 went to urban areas, and 83 percent went to co-ops in economically distressed areas.

“Often we’re lending to people who do not have a lot of their own resources to this other than their hard work,” Jennings says. “People may be working hard in their cooperative at the same time they’re working other jobs.”

On the other hand, it’s a steep and unpaid time commitment for the member representatives involved in approving loans at Shared Capital. The loan fund’s all-volunteer, eight-member loan committee meets on the third Wednesday of every month to approve loans of $100,000 or more. (For loans below $100,000, staff can approve — but those are rare, Jennings says.) The three to five loan applications per month each have around 25 pages of materials to review in advance of each loan committee meeting.

The loan committee consists of representatives from member cooperatives as well as external experts with experience in cooperatives. Committee members are selected by Shared Capital’s board of directors, who are themselves elected from and by Shared Capital’s member cooperatives. The eleven board members have three-year terms, staggered so that only a portion of the board gets elected every year.

“Just because you’re willing, you don’t just get on. That’s different from a lot of boards I’ve encountered or served on,” says board member Julie Ristau, who ran for re-election this year against seven candidates vying for four seats. “Then it’s a chunk you have to review every quarter, and long meeting agendas. Things go out way ahead of time, and you’re expected to prepare for the board meeting.”

Shared Capital’s money comes mostly from member cooperatives, which also has its pluses and minuses. On the one hand, it’s nice to say that member cooperatives have supplied about two-thirds of Shared Capital Cooperative’s lending capital for what is currently a $12 million loan portfolio. On the other hand, it’s just a $12 million loan portfolio, even after 40 years of lending and growing.

“We want to get to $20 million over the next three to five years,” says Jennings. “But we also want to examine our reasons for growth, that we’re not just growing because we want to be bigger or have a reputation, but grow because we are expanding or deepening our impact and lowering cost for our members.”

Given its limited size, Shared Capital Cooperative has tried to be strategic about being the first money into a project that will ultimately combine multiple funding sources. Early money can often help unlock other sources of funding. Jennings points to one example last year, a loan to a startup taxi-driver co-op in the Washington, D.C., area that wanted to purchase a fleet of accessible vehicles. Having the loan commitment from Shared Capital in hand helped secure additional funding from Montgomery County and other sources, and the driver co-op didn’t need to start repaying the loan until they asked for Shared Capital to actually wire them the money.

“It can be easily six months from when we approve the money til when they’re ready to take the money because of where they are in their process,” Jennings says. “But it often supports the success of their business if they can line up our commitment and they can go to someone else to say they have this other money ready to go.”

Waiting to get loans out the door after approval also makes it more difficult to grow, but it’s a balance that the board members get to assess on a regular basis.

“It’s another element of being a cooperatively run loan fund, that our borrowers need us to be financially successful to be around, but at the same time we don’t have to use aggressive lending tactics because we can look at what’s in the best interest for the fund and the borrower,” Jennings says.

Being based in the Twin Cities has some pros and cons itself. It’s been relatively easy, from a legal standpoint, to raise capital from Shared Capital’s membership, since Minnesota’s cooperative laws are very flexible and historically many of its member cooperatives are in Minnesota. Raising capital from cooperative members outside of Minnesota means a few more regulatory hoops to jump through, but not that many.

On the other hand, being organized as a cooperative under Minnesota state law means that donations to Shared Capital (which it does accept) are not tax deductible, and the cooperative is not eligible for grants from most foundations.

“We do give some things up, but I think what we gain is so much more important,” says Jennings. “What we gain is a group of members who are literally, not just figuratively, invested in us. I’m not sure we’d be around today if we were a nonprofit because we would have been advancing foundations’ desires as opposed to our members.”

Like every loan fund, there have been some failures — in the past year alone, two food co-ops that launched in two food deserts with financing from Shared Capital Cooperative, one in North Carolina and one on the north side of Minneapolis, both shut down. Both closures were unfortunate, but did nothing to slow down Shared Capital.

“We’re seeing a lot of communities coming back to cooperative models in recent years who had not been overtly using them,” Jennings says. “It’s not a new thing necessarily. I think we’re seeing a bit of a renaissance.”

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.

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Oscar is Next City's senior economic justice 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.

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Tags: worker cooperatives

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