University of Wisconsin Center for Cooperatives
Year in Cooperation: A Cooperative Development Magazine
Published by the Minnesota Association of Cooperatives
Spring 1996 -- Vol. 2 No. 2

Building Better Borrowers

By Margaret Lund, Director, Northcountry Cooperative Development Fund

One of the best things about working with co-ops is how willing co-op folks are to work together, share expertise, and try out new and creative ways to confront common problems. In the beginning when many of the region's "new wave" natural foods co-ops were getting started, one of the primary obstacles that organizers identified was the need for financing. There just weren't enough (or sometimes any) conventional lenders around who understood the cooperative model and were willing to risk money that it could work.

Over the last decade and a half, the cooperative community has worked hard to address the capital needs of small cooperatives. Northcountry Cooperative Development Fund (NCDF) was started in 1979 as a financial intermediary specifically for small and medium-sized Midwestern cooperatives and the National Cooperative Bank Development Corporation (NCBDC) has been an active lender in our region during the same period. But as lenders have always known, money-- particularly money in the form of debt-- isn't always the whole answer. Co-op lenders like NCDF and CNBDC are now beginning to look beyond simple financing to discover what other obstacles that are standing in the way of co-op development-- and what steps lenders can take to overcome them.

As cooperative lenders themselves, NCDF and NCBDC knew they had funds available for lending to the small and medium co-op sector. They knew there were small natural foods retail co-ops in the region in need of extra funds, but they also knew well the obstacles in the way of the successful meeting of lender with borrower. Specific factors that have tended to inhibit lending to smaller cooperatives include: the fact that the financial records of many small co-ops applying for loans were weak and/or incomplete; the stores shared many issues and problems in common and could have benefitted from each other's experiences, but there was no organized way to get information from one-co-op to another; small consumer co-ops also often showed very weak balance sheets with little equity; many were overly dependent on one or two dedicated people whose eventual departure would send the operation spinning into a crisis; and finally some good potential borrowers just didn't know there were co-op friendly financiers out there.

A sharp increase in the number of inquiries from new consumer co-op start-ups in Minnesota over the last two years convinced NCDF that something needed to be done to bridge this gap between the financing needs of small and emerging co-ops and the financial accountability needs of co-op lenders. To help increase the ability of smaller co-ops to access debt financing successfully-- that is, to increase the chances for success of both getting the loan and making good use of it-- NCDF and NCB Development Corporation have created a new "Building Better Borrowers" program slated to begin in January of 1996. The project will be carried out by NCDF staff, with funding and guidance from NCB Development Corporation.

A key to the new initiative will be to build upon existing strengths, both within the co-ops themselves and the wider cooperative community. One aspect of the new venture, for example, will involve pairing managers and board members from successful natural foods co-ops with ones from developing co-ops in a mentoring sort of relationship. This method will both facilitate learning peer-to-peer, and also to help support and develop local leadership in rural areas where people often feel isolated from other co-ops. Another function of the program will be to build upon the successful efforts of other co-ops in putting together a member equity drive to help build the co-op's balance sheet. A third part of the project will involve putting together a "financial advantage toolbox" a set of basic record keeping, budgeting, and business planning guidelines to help make it easy for small co-ops with limited staff to utilize the best financial practices possible. A fourth element of the Building Better Borrowers program will involve providing guidance to co-ops at critical junctures of their development, such as during the start-up phase of when planning a major relocation or expansion. In this capacity the lenders will not act as a consultant, but rather as a guide, informing co-ops at critical junctures of the practices and steps that have worked best for enterprises like them in the past. A final task of the new initiative will be a marketing effort to ensure that all small and medium-sized cooperatives in the region know about the financing options available to them.

Building upon what they know best, helping each other out and using their skills and knowledge in a new way is how successful new co-op ventures have always started out. The new NCDF-CNBDC Building Better Borrowers program is simply a step in a new direction from an old reliable path.


Since 1992, Margaret Lund has been the Director of the Northcountry Cooperative Development Fund, a cooperative financial intermediary with assets of $1.7 million serving consumer, worker, producer and housing cooperatives throughout the Upper Midwest. Under a contract with NCDF, she also manages a micro loan fund for Artists in the Twin Cities area. Prior to her current position, Margaret was the Director for International Projects at the national Center for Employee Ownership and has worked as a consultant and program officer in the field of community economic development for the past 10 years.


This material has been reproduced in electronic format with the permission of Year in Cooperation.

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