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Supporting fair and ethical business in partnership with The Co-operative Bank

3.1 Financing your co‑op

Business support for co-ops

Just like any other business, co‑ops need finance for a range of activities and materials. This is particularly so at the start‑up stage, and also as the business looks to grow and change. 


If you are setting up a business for the first time and don’t already have experience of dealing with business finance, it can feel like a particularly daunting task.

We’ve tried to break this down for you, so take the time to read through your options now. This will help you to think ahead and prepare to put together a business plan.

What is finance?

Simply put, finance is lump sums of money that you can quickly and easily use for whatever purposes are required within your business. It may be in the form of:

  • Grants and gifts
  • Loans
  • Community investment
  • Credit

Finance for co‑ops is similar to that for conventional business: the language, the concepts and the maths are essentially the same. The difference is that it is upside down.

In conventional enterprises, investment and ownership dictate how the business works. For co‑ops it is the members – the people most affected by the business – that are in control. They determine the direction of the organisation and the terms on which investment is raised.

This simple, but subtle, reversal of power will provide the context for the way in which you finance your co-operative.

Getting investment ready

Successfully financing your co-operative is likely to be the end point of a good deal of planning and preparation. As you begin the process of setting up your co-operative, you’ll need to consider what finance you need and how you will acquire it.

  • Whilst ALL businesses need finance
  • NOT ALL business will get the finance they need

A co‑op, like any other business, needs to have a strong business case that clearly presents the need for finance and the model for managing that finance. This is described as getting your business ‘investment ready’ – a term often used to understand an organisation’s ability to take on repayable finance.

It's also relevant to co‑ops considering grants as part of their financing needs. Even grants can be regarded as a form of investing in a trading organisation.

Step 4 of this tool outlines what's needed to create a business plan – which proves that your organisation is investment ready.

Two important things to consider at this stage are:

  • Return – financial and social
  • Risk – high and low

    Outlining your co‑op’s financial and social ‘return’

    Co‑ops are businesses, but they are guided by a shared purpose – a set of values, or aims, that go beyond simply making money.

    As such, the ‘return’ for investing in co-operatives can result in financial and social return.

    Most forms of repayable finance will require co‑ops to aim to offer some form of financial return to its investors, whether that is being able to generate surplus income to service a loan, or the ability to pay back and in some cases compensate your members who have directly invested through taking an equity stake in you co‑op. 

    social return is a key element of being a co‑op whereby benefit is felt or seen by the people impacted by the business.

    These two kinds of ‘return’ are the basis of the story you will tell about your co‑op’s intended future success.

    The balance of ‘return’ between financial and social will likely affect the type(s) of investment you seek. For example:

    • If your returns are principally social, with few if any financial returns, the emphasis is likely to be mostly on grant funding, equity-based investments from the most closely involved stakeholders, and in-kind support.
    • If there are significant financial returns, with subtle or localised social returns, it may be more appropriate to look at more commercial finance.

    Outlining your co‑op’s risk

    As well as outlining the benefits of investing in your co‑op, you also need to make it clear to potential investors the risks involved in the venture.

    Risk is more than just uncertainty. It is the unavoidable, inherent uncertainty of a volatile or changing marketplace, and the extent to which those unavoidable uncertainties could impact on your organisation. There is no excuse for failing to investigate and gather information on critical issues before the organisation starts trading, but if that still leaves you not knowing exactly what kind of market will exist for your product in two years’ time, that is risk.

    Risk should be considered at an early stage in the process simply because it will, to a large degree, shape the experience of the participants:

    • They reward people of very different temperaments, and anyone getting drawn into a new business activity has a right to know the level of risk involved first.
    • Your steering group should have an honest discussion about the level of risk that they are prepared to manage.

    High risk

    A risky enterprise is stressful, exciting, high pressure and with the potential for both high returns and disappointment.

    Low risk

    A low risk enterprise is confined to well trodden paths, rulebound, safe and reassuring.

    Next we look at the types of finance your co‑op could access
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