Finalize outside financing sources and terms.
GOAL: To obtain the funding necessary to finance the co-op’s start-up and early stages.
WHAT TO DO:
- Begin with capital from members. Calculate how much this give the co-op in terms of base financing.
- Research alternatives, such as special start-up financing, economic development money for job creation and revitalization, and member loans.
- Contact local business or economic development agencies about the services and support they may be able to provide to a new business.
- Have just one or two people conduct all negotiations with commercial lenders. Have those people report to the board as negotiations proceed. (Your business plan will be a critical element of your loan application.)
- Make sure that potential lenders understand the cooperative ownership structure. Individual guarantees should be avoided (with sufficient member financing and a clear explanation, they should not be required.)
- Vendor financing will be an important part of your capital base. Find out what potential suppliers can offer your group in terms of credit terms, special help with opening orders, and technical assistance.
KEY DECISION: CAN THE CO-OP RAISE THE MONEY NEEDED TO START UP OPERATIONS? Are the terms of loans and other credit acceptable to the co-op, and do projections show the co-ops ability to repay such financing even in less than the ideal scenarios?