Features & Sacco Leadership

How to finance your co-operative business

How to finance your co-operative business

Starting a new co-operative business involves significant financial planning and investment. From construction costs to legal fees and initial inventory, securing the necessary funds is crucial.

Loans from Financial Institutions

One common way to finance a co-op is through loans. While it’s wise to avoid long-term debt if possible, loans can provide the funds needed to get started. To secure a loan, your co-op will need a solid business plan to show lenders that you can repay the borrowed money. Ensure your proposal is clear and well-prepared.

Membership Shares and Fees

Most co-operatives raise funds by selling membership shares. When someone buys a membership share, they become an owner of the co-op, with rights to vote, run for the board, and sometimes receive a share of the profits. The price of these shares is set by the co-op’s initial board based on its needs.

For instance, if a co-op aims for a large membership base, it might set a lower price for shares. Conversely, if the co-op needs significant capital, it might set a higher share price. Offering different classes of membership shares can attract various interest groups and help raise more capital.

In addition to membership shares, some co-ops charge annual membership fees, which provide a steady income and ensure active participation.

Member Loans

Co-operatives can also borrow money directly from their members. This involves creating a formal agreement outlining the loan terms, including the interest rate and repayment schedule. The co-op’s bylaws should specify the maximum interest rate on member loans.

Investment Shares

Investment shares are another way to raise larger amounts of capital. These shares are usually more expensive than membership shares and are bought by individuals seeking a return on their investment. Investors enter agreements detailing the rate of return and other terms. Investment shares can be bought back by the co-op when its finances are stable, or issued for specific projects.

Fundraising

Leveraging community connections can be an effective way to raise money. Co-ops can seek donations from local residents and businesses. If the co-op is a non-profit, it may qualify for charitable status, allowing it to offer tax-deductible receipts for donations. Non-financial contributions, such as volunteer time and in-kind services, are also valuable.

Online fundraising platforms like Kickstarter or Indiegogo can help raise money for innovative ideas. These platforms require a clear understanding of your budget to ensure you can deliver on promised rewards to donors.

Grants

Co-operatives may also receive financial assistance through grants. Grants can cover early-stage expenses like legal fees or business plan development. Applications are typically made to government agencies, NGOs, or large enterprises. Co-operatives First can assist in finding suitable funding sources.

Planning and Development Costs

Early stages of co-op development can be costly, including community engagement, incorporation fees, business planning, equipment purchases, and staffing. Many of these costs can be managed with volunteer time, membership fees, or the sale of shares. Grants and donations can also support initial expenses, with loans being a last resort if needed.

 

Andrew Walyaula
Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Andrew Walyaula

About Author

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

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