This document provides an overview of financing opportunities for converting businesses to worker cooperatives. It includes FAQs for lenders, an explanation of cooperative financial statements that differ from traditional businesses, and five case studies of recent cooperative conversions. The case studies show a range of deals from $100k to $15M in size across various industries, demonstrating the growing potential to finance worker cooperative conversions.

1. THE LENDING OPPORTUNITY
of a GENERATION
Worker Coop Conversion Financing FAQs and
Case Studies

2. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
“Trillions
of
dollars
of
business
value
are
going
to
change
hands
in
the
next
10
to
20
years.”
Image:
Bre*
Ryder,
The
Economist
Quote:
Bob
Balaban,
Headwaters
MB,
a
Denver-­‐based
investment
bank

3. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
• FAQs
for
lenders
about
financing
coop
conversions
• Overview
of
worker
coop
profit
sharing
and
equity
accounts
• 5
C’s
of
Credit
applied
to
worker
coop
conversion
financing
• Five
case
studies
of
recent
deals
www.project-­‐equity.org/download-­‐the-­‐lending-­‐opportunity-­‐of-­‐a-­‐generaPon

4. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
• Similar
to
financing
other
business
sales/purchases:
• managers
purchase
their
business
• an
ESOP
transacPon
• Ownership
transfer
process:
1. Reorganize
exisPng
business
as
a
worker
coop
or
start
new
cooperaPve
business
2. Redeem
stock
from
owners
and
allocate
it
to
new
worker-­‐owners
3. ShiX
governance,
management,
culture
in
line
with
vision
for
new
worker
cooperaPve
Overview of the Process

5. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Overview of the Process
EXPLORE
ASSESS
• Financial
feasibility
study
• Opera:onal
capacity
analysis
PREPARE
• Line
up
financing
CONVERT
• Execute
financing
SUPPORT
• Structure
support
into
financing

6. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
• Range
of
industries
• Solar
companies
• Food
produc:on
companies
• Restaurants
• Construc:on
companies
• Retail
stores
• Consul:ng
businesses
• Child
care
businesses
• Transporta:on
businesses
• Range
of
deal
sizes
• 3
–
100+
employees
• $100k
–
$15M
value
Dozens of deals currently in the
works

7. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION

8. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Technical
Assistance
Capital
Providers
Lawyers

9. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Borrower:
The
worker
cooperaPve
• Coop
decision
making
• Who’s
liable?
• AuthorizaPon
to
borrow:
who
signs
for
the
coop?
Lender:
UnderwriPng
• Five
C’s
of
Credit
• Due
diligence
Lending Basics – Worker Coops

10. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
• Coop
accounPng
follows
GAAP
• Balance
Sheet
differences
• Internal
Capital
Accounts
• TaxaPon
in
worker
cooperaPves
Assets
Current
Assets
Fixed
Assets
and
Other
Total
Assets
Liabilities
Current
Liabilities
Long-­‐term
Liabilities
Total
Liabilities
Equity
Capital
Stock
(Membership
Shares)
Member
Deposits
(Individual
Internal
Capital
Accounts)
Retained
Earnings
(Collective
Accounts)
Net
Income
Total
Equity
Total
Liabilities
and
Equity
Employee
Cooperative
Corporation
Sample
Balance
Sheet
Coop Financial Statements

11. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Source
of
capital
Notes
DEBT
InsPtuPons
(Banks,
CDFIs)
Generally
requires
collateral;
Personal
guarantees
not
required
but
helpful;
Primary
posiPon
on
all
assets
except
inventory;
Set
repayment
schedule
Vendors
Primary
lien
on
business
inventory
Selling
owner
Subordinate,
oXen
unsecured;
Repayment
conPngent
on
primary
debt
repayment
Individuals
Subordinate,
oXen
unsecured;
Repayment
conPngent
on
primary
debt
repayment
EQUITY
Worker-­‐owner
buy-­‐in
VoPng
shares;
usually
small
%
of
sources
Accredited
Investors
(Private
Placements)
Non-­‐voPng
shares;
Targeted
rate
of
return
subject
to
coop
performance
Non-­‐accredited
investors
(Direct
Public
Offerings)
Non-­‐voPng
shares;
$1,000
minimum;
Targeted
rate
of
return
subject
to
coop
performance
ContribuPons
or
grants
No
repayment
required

12. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Five C’s of Credit
5
C’s
of
Credit
Coopera:ve
Difference
Capacity
Resiliency
during
downturns
Capital
Equity
share
structure
Collateral
Limit
personal
guarantees,
Community
collateral
Character
Governance
and
communicaPon
CondiPons
Coop
networks
and
supports

13. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
5C’s of Credit:
CooperaFve
Differences
• Role
of
loan
guarantees
• Who
may
provide?
• CD-­‐
or
Cash-­‐backed
guarantees
• Limited
guarantees
• Character
• Coop
Culture
=
Ownership
culture
• Governance
and
CommunicaPon
• Sources
of
equity
capital
• How
equity
enters
and
leaves
the
coop
• Look
beyond
the
owners,
to
the
community

14. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Conversions Financing Case Studies
A
Yard
&
A
Half
Landscaping
New
Era
Windows
Island
Employee
Coopera:ve
Real
Pickles
New
School
of
Montpelier
Primary
financing
4%,
7-­‐year
term
loan
from
CooperaPve
Fund
of
New
England
5%,
10
year
term
loan
with
deferred
repayment
from
The
Working
World
5.5%,
7-­‐year
term
loan,
one
year
interest
only
from
a
lender
partnership
incl.
CFNE,
CEI
and
NCB
Preferred
non-­‐voPng
equity
through
a
DPO
with
a
targeted
4%
dividend
6%,
5-­‐year
loan
from
CooperaPve
Fund
of
New
England
Working
capital
as
%
of
total
29.1%
49.4%
19.7%
16.9%
36.5%
Equity
&
grants
as
%
of
total
10.6%
2.4%
0%
70.8%
0%
Seller
financing
as
%
of
total
12.1%
N/A
26.8%
0%
15.9%
Total
financing
$635,000
$850,000
$5,600,000
$749,000
$315,000

15. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
A
Yard
&
A
Half
Landscaping
(incorporated
2013)

16. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Financing
A
Yard
&
A
Half
Equity
Owners
Equity
$62,000
ContribuPons
$5,000
Debt
CFNE
(Senior)
$400,000
Seller
Loan
(Sub.)
$77,000
Friends/Family
(Sub.)
$91,000
Total
Sources
$635,000
Business
Purchase
$450,000
AcquisiPon
Working
Capital
$185,000
Total
Uses
$635,00
Equity
12%
Senior
Debt
58%
Sub.
Debt
30%

17. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Island Employees CooperaFve
Island
Employee
CooperaPve
(incorporated
2014):
Board
of
Directors

18. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Island
Employee
Coopera:ve
Bank
(Senior)
$1,800,000
CEI
(Senior)
$1,000,000
CFNE
(Senior)
$800,000
Seller
(Sub.)
$1,500,000
Associated
Grocers
of
New
England
$500,000
Total
Sources
$5,600,000
Purchase
of
Business
$4,250,000
Inventory
$930,000
Working
Capital
$175,000
Closing
Costs
$130,000
Technical
Assistance
$115,000
Total
Uses
$5,600,000
Equity
1%
Senior
Debt
63%
Sub.
Debt
26%
Inv.
10%

19. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
• Connect
with
the
Coop
Network
• Consider
current
business
clients
• Finance
without
lending
• ParPcipate
in
a
Coop
Lender’s
Loan
Seize the Opportunity

20. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION

21. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
CooperaFve Investment Funds
h*p://leaffund.org/
www.cooperaPvefund.org
www.theworkingworld.org
h*p://sharedcapital.coop

22. Cooperative Fund of New England | Democracy at Work Institute | Project Equity
THE LENDING OPPORTUNITY OF A GENERATION
Dorian Gregory
Cooperative Fund
of New England
Copyright
2016
©
Trust
for
ConservaPon
InnovaPon,
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behalf
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our
program,
Project
Equity.
All
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reserved.
©
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Equity
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©
Trust
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InnovaPon
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ConservaPon
InnovaPon
Copyright
©
2016
CooperaPve
Fund
of
New
England,
Project
Equity,
and
Democracy
at
Work
InsPtute.
This
work
is
made
available
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terms
of
the
CreaPve
Commons
A*ribuPon-­‐NonCommercial-­‐ShareAlike
4.0
InternaPonal
License
(CC
BY-­‐NC-­‐SA
4.0).
Alison Lingane
Project Equity
Camille Kerr
Democracy at
Work Institute
dorian@coopfund.coop
www.coopfund.coop
alison@project-equity.org
www.project-equity.org
ckerr@institute.coop
www.insitute.coop
www.project-­‐equity.org/download-­‐the-­‐lending-­‐opportunity-­‐of-­‐a-­‐generaPon
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