The unique business model of co-operatives

The unique business models of co-operatives

The Investment Readiness Program

Co-operatives capitalize their operations in many different ways, from member shares to reserves, as well as debt financing and grants, the latter being where the IRP partners can play a role.

There are a number of ways a group can seek financing for their co-operative business venture, including securities (offering statements), debt financing, grants, and government subsidies/support.

DEBT FINANCING: In addition to the ability to raise money from the membership and community investors, co-operatives can also take on debt financing from financial institutions like credit unions or banks in order to finance their projects and operations. This can include obtaining a mortgage or loan to purchase property or equipment, opening a line of credit for the co-operative to use, or other types of shorter term loans. The ability of a co-operative to obtain financing of this type will depend on several factors, including:

  • The available equity or collateral that the co-operative can bring to the table
  • The perceived risk of the investment or the business of the co-operative on the part of the financial institution
  • The amount of money required

GRANTS: Some co-operatives – usually only those operating with not-for-profit or charitable status – can also access grants from charitable foundations or government agencies like the Ontario Trillium Foundation. There are some granting programs that are open specifically to co-operatives, regardless of their tax-status.

Grants are usually project-based and provide funding for a finite period of time. They usually do not provide ongoing operational funding, but may partially cover staff costs. Grants will generally require an application and approval process and not all applications will be successful. (Source)

The Investment Readiness Program funding partners, other federal agencies, foundations and other entities do offer funding streams that can include grant components.

Indivisible Reserves

An indivisible reserve in a worker co-op is property owned by the co-operative/the co-operative movement which can never be divided among members.  It is created by allocating a set percentage (e.g., 20% or 40%) of annual surpluses to the indivisible reserve.

It is permanent co-operative capital, and is notionally seen as the value of the common effort of the members. As long as the co-op is operating as a co-op, it can use the indivisible reserve like any other retained earnings.  In other words, this reserve can be controlled by the members, but not accessed by them for distribution to themselves individually.  “Indivisible” means that if the co-op ceases to exist as a co-operative (e.g., because it is wound up, or sold), the reserve will usually go to a co-op development fund, a federation or another co-operative organization and not be available to the individual members. (Read more here)

For tools and resources, please contact your provincial or territorial association, or sectoral federation: link.

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