Fund will bankroll co-op businesses
As private equity firms amass billions to gobble up, restructure, and sell off big companies for quick profits, the nonprofit Cooperative Fund of New England is raising a $1.1 million "patient capital" fund to bankroll food and housing co-ops and worker-owned businesses.
The new Cooperative Capital Fund, to be unveiled at an Oct. 19 event at the Episcopal City Mission in Boston, will pioneer a lending product aimed at the kind of small-scale alternative businesses that have been finding it increasingly difficult to raise capital.
"We're trying to support the idea of cooperative businesses," said Rebecca Dunn, executive director of the Cooperative Fund. "We've seen over and over again that co-ops have the need, and there is no other source for this kind of money."
Started in 1975 with $25,000 pulled together by a group of social activists led by George Pillsbury, heir to the baking family fortune, the Cooperative Fund of New England created a revolving fund that has made $14 million in low-interest loans to 400 borrowers over the past 32 years. The fund now has about $6 million in assets.
While many of its borrowers have become established businesses, from the Harvest Co-Op Markets in Cambridge and Boston to Red Sun Press in Jamaica Plain to the Willimantic Food Co-op in Connecticut, some find it hard to expand in the face of competition from larger businesses with easy access to capital. At the same time, rising housing and equipment costs are discouraging start-ups.
The new fund is meant to help such borrowers. Dunn said her organization already has raised several hundred thousand dollars from private investors, foundations, and traditional banks, including New Alliance Foundation, Citizens Bank, Bank of America, and the Pelham Fund for Economic Justice, part of the Episcopal City Mission. It also received $143,000 in matching funds from the Treasury Department.
While its current loans typically are below prime rate and have repayment terms of three to five years, loans from the new "patient capital" fund are expected to be a point over the prime rate but be repayable over five to seven years. Many will be noncollateral, meaning borrowers won't have to use assets like real estate or inventory to back up the loans. And some will be structured so borrowers repay only interest, rather than interest and principal, in the early years.
"We don't want to tax cash flow while companies are growing or expanding," Dunn said. "This will be a separate pool of loans that will have more risk than our loans do now."
Investors will also get average returns of 5 to 7 percent, rather than the 3 percent on current loans.
Jenny Silverman, sales manager for Red Sun Press, an offset printing and design business owned cooperatively by its dozen employees, said her company might seek to tap into the new capital fund for expansion. Two years ago, Red Sun Press took a loan from the New England Cooperative Fund to buy pre-press equipment.
"The capital demands on small businesses are greater than ever," Silverman said, citing the impact of new technology. "Years ago, you could have a printing press for 30 to 40 years. Now some of our equipment, pre-press equipment, is outdated in three to five years."
While the Jamaica Plain printing company has enough of a track record that it can get traditional bank loans, that is not the case with many younger cooperatives, Silverman said. And those companies, because of their structure, can't access the venture capital that fuels other start-ups. "Many cooperatives, by their very nature, don't want to have outside investors," she said. "At the very beginning, it was difficult for us to borrow money. Banks wanted to speak to a single owner."
Indeed, one of the goals of the new capital fund, Dunn said, is to provide co-ops and worker-owned start-ups with an initial line of credit that will enable them to access bank loans and other capital sources. For many potential borrowers, "there's been a consistent funding gap," Dunn said. "We wanted to fill that gap."
Robert Weisman can be reached at weisman@globe.com.
