The cooperative business model emphasizes shared ownership (by a business’s employees and/or members) and democratic governance, offering a flexible structure for a wide range of organizations.
There are multiple types of cooperatives, including worker, consumer, producer, housing, and platform cooperatives, each serving different purposes.
Choosing the right cooperative model depends on an organization’s goals, stakeholder composition, and desired member engagement.
Co-op financing options include member contributions, grants, and mission-aligned lenders like Capital Impact Partners, which supports cooperative development through loans, impact investments, and grants.
The cooperative business model provides a compelling alternative to traditional business ownership, especially for those prioritizing employee ownership, democratic governance, and community alignment. In this guide, we explore the most common types of cooperative business models, explain how each one works, and outline how to determine which model best fits your goals. We also spotlight how Capital Impact Partners, part of the Momentus Capital branded family of organizations, supports various types of employee-owned businesses through flexible co-op financing options.
What is a cooperative business model?
A cooperative business model is an enterprise owned, governed, and operated for the benefit of its members. Unlike traditional companies that distribute profits based on capital investment, cooperatives prioritize use and participation. This means that members use the cooperative’s services or products, and their participation in decision-making and ownership is essential for democratic control and long-term sustainability. Members – whether workers, consumers, or producers – share control, usually following the principle of “one member, one vote,” and also benefit financially based on their engagement.
Common Features of the Cooperative Business Model
Most cooperatives share the following characteristics:
Democratic Governance: Cooperative businesses follow the principle of one member, one vote, regardless of the amount of capital contributed. This ensures that control remains equitable among members and prevents decisions from being driven solely by financial power.
Member or Community Control: Members have the authority to elect leadership and shape strategic direction, fostering accountability and alignment with community needs.
Long-Term Business Continuity: Cooperatives are designed to be resilient and enduring. Their structure promotes reinvestment in long-term goals and values (PDF) rather than short-term profit maximization.
Types of Cooperative Business Models
Cooperative business models can be adapted to a range of sectors and needs. The most common are:
Worker Cooperatives
Consumer Cooperatives
Producer Cooperatives
Purchasing (Shared Services) Cooperatives
Housing Cooperatives
Financial Cooperatives
Multi-Stakeholder Cooperatives
Platform Cooperatives
Investment Cooperatives
Social Cooperatives
Worker Cooperatives
A worker cooperative is an employee-owned business in which the workers own the majority of shares and control decision-making. Employees earn a share of profits and elect the board. These models are ideal for small businesses considering ownership succession. An illustrative example is Obran Cooperative, a worker-owned cooperative conglomerate corporation that is giving decision-making processes and capital back to its caregivers, operators, and health care workers. Capital Impact partners supported Obran’s acquisition of a home health care provider in Los Angeles using one of our impact investment products. ChiFresh Kitchen is another example of a worker cooperative. They are a local food service cooperative in Chicago that received a grant from Capital Impact Partners’ 2020 Co-op Innovation Award. ChiFresh sells meals to local residents and businesses, providing a vital healthy food resource to the community.
Worker cooperatives like Ward Lumber – which received financing from Capital Impact Partners – are ideal for businesses considering ownership succession.
Consumer Cooperatives
Consumer cooperatives are owned and controlled by the people who buy the goods or use the services. They’re common in grocery retail, utilities, and housing.
Producer Cooperatives
Producer cooperatives are formed by independent producers (e.g., farmers, craftspeople) who come together to market, process, or distribute their goods jointly.
Purchasing (Shared Services) Cooperatives
Purchasing cooperatives allow small businesses or independent contractors to increase their purchasing power by buying goods and services collectively. The Independent Drivers Guild started off as a purchasing cooperative formed to reduce costs for rideshare drivers in NYC, and a recipient of Capital Impact Partners’ 2019 Co-op Innovation Award. They have now morphed into a worker cooperative.
Housing Cooperatives
Housing cooperatives are collectively owned and governed by residents who manage shared property to ensure long-term affordability and control. Capital Impact Partners has supported NASCO Properties, Inc., with lending to help them acquire existing properties. NASCO is a housing cooperative that offers students, families, and older adults low-cost housing with an unusual twist. The residents of the buildings rent their properties, but run the facilities cooperatively, committing to maintain the buildings and shared spaces, hold regular meetings, and share communal meals.
NASCO, a housing cooperative and recipient of Capital Impact Partners’ Co-op Innovation Award, offers students, families, and older adults low-cost housing with a twist.
Financial Cooperatives
Financial cooperatives include credit unions and cooperative banks, member-owned financial institutions offering savings, loans, and other financial services.
Multi-Stakeholder Cooperatives
Multi-stakeholder cooperatives include more than one member class, such as workers, users, and community investors, with shared governance across groups. They are well-suited for community-serving health care, education, or food systems.
Platform Cooperatives
Platform cooperatives apply cooperative principles to digital platforms. They sell goods or services primarily through a website, mobile app, or protocol and rely on democratic decision-making and shared platform ownership by workers and users.
Focused on social goals such as employment or delivery of community services, these cooperatives often blend multiple structures and operate as mission-aligned organizations.
Are you part of a cooperative that’s driving innovation and creating positive change in your community?
We encourage you to explore the resources and support offered by Momentus Capital and to consider applying for next year’s Co-op Innovation Award.
How to Choose the Right Cooperative Business Model
Identify Your Primary Stakeholders
Determine who will own and benefit from the cooperative. The identity of your primary stakeholders will influence the type of cooperative model that best suits your organization. For example, a worker cooperative is owned and governed by employees and is ideal for businesses aiming to promote employee ownership. A consumer cooperative is suitable for organizations focused on serving member needs, such as retail or utility services.
In the cooperative business model, members hold regular meetings to discuss and vote on important issues, fostering transparency and accountability.
Define Your Mission and Objectives
Clarify the core mission and long-term objectives of your cooperative. Understanding your goals will help determine the cooperative model that aligns with your values and desired impact. Consider:
How does your cooperative plan to deliver value to its members?
What are your long-term sustainability and growth plans?
Housing cooperatives such as Pilsen Housing Cooperative, a recipient of Capital Impact Partners’ Co-op Innovation Award, are types of cooperatives suitable for individuals or groups seeking affordable and community-oriented housing.
Assess Governance Structure and Member Participation
Evaluate how decisions will be made and the level of member involvement in governance:
Democratic Control: Most cooperatives operate on a one-member, one-vote principle, ensuring equal say in decision-making regardless of capital contribution.
Board of Directors: Elected by members to oversee operations and make strategic decisions.
Member Meetings: Regular meetings to discuss and vote on important issues, fostering transparency and accountability.
Evaluate Financial Requirements and Resources
Consider the financial aspects of starting and sustaining your cooperative:
Start-up Capital: Determine the amount of capital needed to launch operations and how it will be raised (e.g., member contributions, loans, grants).
Revenue Streams: Identify potential income sources to ensure financial viability.
Access to Financing: Explore financing options tailored to cooperatives, such as those offered by Capital Impact Partners, which provides lending, impact investments, and grant funding to support cooperative development.
Understand Legal and Regulatory Considerations
Research the legal requirements for establishing a cooperative in your jurisdiction:
Incorporation: Determine the appropriate legal structure and process for incorporating your cooperative.
Bylaws and Policies: Develop governing documents outlining membership criteria, decision-making processes, and operational procedures.
Compliance: Ensure adherence to local, state, and federal regulations affecting cooperatives.
Financing & Support for Cooperatives
Cooperatives typically fund operations through a combination of:
Member Buy-In: Members purchase shares or contribute capital to help fund startup costs and build equity in the business.
Co-op Financing: Capital from community lenders, Community Development Financing Institutions (CDFIs), and mission-aligned institutions helps cover growth or working capital needs. This financing often features flexible terms tailored to the unique structure of cooperative enterprises.
Grants and Awards: Philanthropic or government support may be available for early-stage cooperatives or those with social missions.
Capital Impact Partners is one of many organizations supporting employee-owned businesses. We support cooperative businesses through:
Lending: We offer co-op financing through flexible loans tailored to the unique structure and cash flow needs of cooperative businesses.
Impact Investments: We offer a flexible, non-dilutive investment capital approach that targets community-centric companies, including employee-owned businesses
Co-op Innovation Awards: These annual grants help early-stage and emerging cooperatives scale.
Obran Cooperative is a worker cooperative that received a non-dilutive impact investment from Capital Impact Partners to continue on its mission of sustaining a more effective health care system.
The Bottom Line
The cooperative business model is a flexible and powerful tool for advancing employee ownership, community control, and long-term impact. Whether you’re forming a worker cooperative to support the transition of an existing business, launching a housing cooperative to maintain affordability, or joining forces to improve purchasing power, there’s a cooperative model built for your goals.
Have questions? Learn more about ways that Capital Impact Partners supports employee ownership and employee-owned businesses via financing, grants, and impact investments.
In September 2024, the Momentus Capital team gathered in San Diego, California, for its annual meeting to share stories of impact from borrowers and beneficiaries, and discuss the organization’s strategy for the coming year.
As part of that agenda, we held a panel discussion with four of our borrowers, showcasing the success stories of businesses and organizations that had previously faced barriers to accessing capital.
In September 2023, the Momentus Capital team gathered in San Diego, California, for its annual meeting to discuss the organization’s strategy for the coming year.
Lisa Cuestas, CEO of Casa Familiar in San Ysidro, provided the keynote address to staff. For over 50 years, this organization run by women of color has supported community empowerment and advocacy.
In her speech, she highlighted the importance of community-led design, environmental justice, and wellness. These are key pillars in Casa Familiar’s approach to choosing and developing new projects. She also spoke to the value of Community Land Trusts as essential to supporting anti-displacement strategies and wealth building.
Lisa also noted Casa Familiar’s long-time partnerships with both Capital Impact Partners and CDC Small Business Finance in supporting their efforts to make connections and provide capital for their projects.
We invite you to watch their conversation or read the accompanying transcript on the Momentus Capital blog.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this sixth installment, we explain what New Market Tax Credit (NMTC) Qualified Low Income Community Investment (QLICI) loans and how they are pivotal in supporting projects that uplift communities living with low income by providing crucial financing under favorable terms.
Understanding the New Market Tax Credit Program
The New Markets Tax Credit (NMTC) program is a federal initiative designed to stimulate investment and economic growth in urban and rural communities living with low incomes, communities that often lack adequate access to capital. The primary goal of the NMTC program is to encourage economic development and job creation in communities that are economically distressed. This is achieved by providing tax incentives to investors.
Under this program, Community Development Entities (CDEs) like Capital Impact Partners provide subsidized financing for qualifying businesses or real estate projects that meet the federal definition of a Qualified Active Low-Income Community Business (QALICB).
A QALICB is typically a business that is located in, or provides services to, communities living with low incomes. The capital provided to these qualifying projects is known as a Qualified Low-Income Community Investment (QLICI), which is typically structured as a seven-year, interest-only loan.
Understanding QLICI Loans
A QLICI is a specific type of investment that is central to the New Markets Tax Credit program. It involves directing financial capital into projects or businesses in communities living with low incomes that meet the qualifications set under the NMTC program.
A QLICI is essentially the financial vehicle through which capital flows from CDEs to QALICBs at favorable rates and terms that traditional financing might not offer.
Why is QLICI Valuable to Developers?
Access to Favorable Financing
QLICIs often come with more favorable terms than those available through conventional financial products. This can include lower interest rates, longer amortization periods, and interest-only payment periods. Such terms can significantly reduce the cost of capital for developers, making projects more financially viable.
Filling Funding Gaps
Many projects in areas experiencing low incomes struggle to secure funding because they are perceived as higher risk. QLICIs can provide the essential capital needed to fill these funding gaps and make such projects feasible. This is particularly important for large-scale developments that can have transformative impacts on their communities.
The importance of this type of loan can be seen through two QLICI notes totaling $7.7 million that Capital Impact provided for Coastal Bank Food Bank in Corpus Christi, Texas. This funding was essential for constructing a new 108,200-square-foot warehouse and distribution center. The project addressed urgent facility needs sparked by explosive growth at the food bank and was critical in a community prone to hurricanes, requiring more expensive construction to meet specific safety standards. New Markets Tax Credits played an indispensable role in the capital stack, preventing potential reductions in food distributions that would have created significant community hardship.
Enabling Comprehensive Development Projects
Developers using QLICIs can undertake comprehensive projects that might include various community-serving elements such as affordable housing, health care facilities, educational institutions, and commercial spaces that create jobs. The flexible nature of QLICIs allows for multi-faceted development that addresses various community needs.
Leveraging Additional Financing
A QLICI can act as a critical piece in the capital stack that attracts other sources of funding. For example, the presence of a QLICI can help reassure other investors and lenders about the viability of a project, leading to increased overall investment.
Community Impact and Compliance Benefits
Projects funded through QLICIs are required to provide measurable community impacts. This aligns with the growing emphasis among developers and investors on social responsibility and impact investing. Additionally, engaging in projects that benefit communities living with low incomes can facilitate compliance with various regulatory requirements or corporate social responsibility goals.
For example, Capital Impact Partners closed on QLICI loans totaling $10.6 million to assist the Center for Transforming Lives in Fort Worth, Texas. The funding supported the conversion of a 102,000-square-foot warehouse into an early childhood education and economic mobility center, increasing childcare availability by 57 percent and boosting economic mobility services to 1,200 women by 65 percent annually. This initiative, crucially supported by NMTC, enabled the construction of a facility dedicated to breaking intergenerational poverty through programming that addresses physical, financial, and emotional needs.
QLICIs are a powerful tool in community development, providing critical financial incentives and benefits that support significant and impactful development projects in disinvested areas. For developers, the strategic use of QLICIs not only enhances the feasibility and scope of their projects but also contributes to their broader economic and social objectives, making them valuable partners in community revitalization efforts.
Check out our mission-driven lending page for more information about our products and to find out which might work best for you.
Imagine a business that doesn’t extract value, but reinvests in its community; where employees aren’t just workers but owners, and where workers have a clear path to wealth building.
That’s the power of a cooperative, a model in which individuals work together to run a business, buy property, or provide a service. For decades, cooperatives have provided an option for groups and communities – esp. historically disinvested communities – to build wealth and self-determination.
Like any other businesses, cooperatives (co-ops) need investment to create that growth. Several years ago, we thought: what model could we create to help co-ops in disinvested communities grow and scale? That is how the Co-op Innovation Award was born. This year, we celebrate the 10th anniversary of the Co-op Innovation Award, which we still leverage to celebrate and expand this transformational business model and the access to economic opportunity that it affords.
Democracy at Work Institute (2015/2016 awardee) helps small businesses transition into worker-owned businesses.
Continuing a Deep History of Supporting Cooperatives
Capital Impact Partners, part of the Momentus Capital branded family of organizations, has provided co-ops with loans and strategic support since our founding in 1982. We were formed through legislation approved by the United States Congress to support the development of cooperatives in underserved communities. In 1978, Congress saw the need to better support the cooperative movement. That led to the passage of the National Consumer Cooperative Bank Act and the creation of the National Cooperative Bank (NCB).
Four years later, a tiny division of NCB known as the Office of Self-Help Development and Technical Assistance was launched to provide more focused work on bringing co-ops to underestimated communities and contribute to the economic development of people living with low-to-moderate incomes.
Over time, this effort grew and went through several different names before becoming Capital Impact Partners – the nonprofit Community Development Financial Institution we are today.
To date, we have provided more than $300 million in lending to cooperatives nationwide, fueling the kind of equitable ownership opportunities that allow communities to build wealth.
CLEAN Carwash (2019 awardee) leveraged its grant to transition from a campaign to end car wash worker exploitation in Los Angeles into a worker-owned co-op and worker center.
Supporting Promising Co-op Models through New Approach
However, in 2015, we realized that some of the most promising co-op projects – many of which are launched by women and diverse communities – needed a different approach from the norm.
“We saw that the real innovation was happening in smaller, scrappier co-ops,” said Alison Powers, director, Economic Opportunities at Capital Impact Partners. “We wanted to water the seeds they were planting, but folks don’t need to take on debt at the earliest stages.”
To support that goal, Capital Impact Partners launched the Co-op Innovation Award, an annual grant program that supports cooperatives operating in communities that experience systemic disinvestment. Each year, award winners receive a one-year grant (anywhere from $10,000-50,000) to support innovative, early-stage projects with potential for scale. While co-ops from all sectors may apply, preference goes to worker co-ops (product or service providers) and co-ops focused on affordable housing and food access in disinvested areas.
Award recipients use their funding to launch and market new programs, hire specialists, invest in training and professional development, and more. In addition to this core support, the award often acts as catalytic capital that attracts further investment in these co-ops. Investment dollars can be hard to come by without cash already in-hand; the Award provides that leverage for co-ops. From 2015-2024, the 30 award winners leveraged their combined $1.025 million in grants to secure more than $13 million in additional funding.
Starting out during the COVID pandemic, ChiFresh Kitchen (2020 awardee) has scaled from renting commercial kitchen space to now owning their own commercial kitchen in Chicago.
How Co-ops Transform Communities
At the heart of the cooperative model is the principle of employee/member ownership. Each employee/member contributes equity capital to start or purchase the business and has an equal say in the co-op’s governance, regardless of their financial investment. Profits are distributed among members or reinvested in the business, ensuring that wealth stays within the community and benefits those who contribute to its success.
There are currently more than 30,000 cooperative businesses in the United States supporting two million jobs and earning more than $600 billion in revenue annually, but the potential exists for even greater impact.
Shared ownership means that the cooperative model can offer employees/members a powerful opportunity to build financial equity, which can help disinvested communities bridge the wealth gap. Local control and ownership keeps each cooperative focused on what its community wants and needs, and successful cooperatives create high-quality jobs and opportunities for employees/members to develop valuable leadership skills.
Are you part of a cooperative that’s driving innovation and creating positive change in your community?
We encourage you to explore the resources and support offered by Momentus Capital and to consider applying for next year’s Co-op Innovation Award. Together, we can build a stronger cooperative movement and a more inclusive economy.
With 30 recipients to date, the Co-op Innovation Award has already had a significant impact nationwide.
For Co-op Cincy, a non-profit that supports a network of worker-owned businesses in the Cincinnati metro area, receiving its $35,000 award in 2021 made a game-changing new “co-op boot camp” possible. Power in Numbers builds on Co-op Cincy’s preexisting “Co-op U” training program with targeted, Black-led training for teams of Black entrepreneurs launching new cooperatives. Participants spend 14 weeks attending weekly classes and getting the hands-on support they need to get a cooperative up and running. So far, the program has launched cooperative businesses ranging from food trucks to a radio station.
“We used the Co-op Innovation Award to help individuals from marginalized communities take economic control of their lives, developing co-op businesses that build long-term wealth. The grant funded our 2nd and 3rd iterations of Power in Numbers.
“Our vision and mission is to create a community that works for all — especially those who have been historically underserved — and it will take all of us to do that. We are really excited to have partners like Momentus Capital,” said Co-op Cincy Co-Director Ellen Vera.
The Industrial Commons (2022 awardee) uses training in sewing and upholstery among other skills to create economic opportunity in small-town North Carolina.
The Industrial Commons is a cooperative in Morgantown, NC, supporting its community by building workforce development. They offer training in a variety of skills, including sewing and upholstery, giving local community members tangible skills and opportunities for wealth building. The Industrial Commons leveraged their $30,000 award to gain a Department of Labor grant, which has funded the work of connecting local youth with their upholstery training.
“This award has been a part of the braid that is forming our overall story. It helped us learn in an active and hands-on way about the furniture manufacturing sector, and helped with learnings that we were able to integrate into our Accelerating Common Economies (co-op training) program, which has served nine communities in cooperative development,” said Aaron Dawson, senior director of Workplace Development at The Industrial Commons.
The Future of the Award: Supporting Equitable Economic Growth for All
The Co-op Innovation Award is not just about start-up funding; it’s about fostering a vibrant ecosystem of cooperative businesses that are building a more equitable and sustainable future for all.
“The ongoing legacy of the Co-op Innovation Award is meeting cooperatives and communities where they are and investing in them to determine their future and build wealth for themselves,” said Alison Powers. “Through the award, Momentus Capital will continue to foster peoples’ right to achieve the dreams they have for themselves and their future.”
Obran is utilizing the cooperative model to not only create a more effective health care system, but also create equity and power for the workers themselves. Facing the need to expand and reach the next level of its operations, Obran turned to Momentus Capital. Momentus Capital’s impact investment team worked with Obran to create a preferred equity investment vehicle to support their vision.
Working as an Uber driver for the past eight years, Martin was hoping to make a better life for his family when he moved to the United States in 1991. As costs rose and pay decreased, he began to question whether he could continue on this path. That was when Martin and his fellow drivers began exploring the power of forming a cooperative and using their numbers to take control of their future.
Whether you are an experienced charter school operator refining your approach or an enterprising newcomer ready to break ground in the charter school education sector, there is always more to discover and master to advance your institution and widen your impact. This series is crafted to deliver crucial insights and practical advice to drive your charter school projects and overall mission forward.
At the Momentus Capital branded family of organizations, which includes Capital Impact Partners, CDC Small Business Finance, and Momentus Securities, we are dedicated to expanding capital and opportunities for underestimated communities, including those innovating in charter school education.
Charter schools stand at the forefront of educational innovation, offering tailored learning experiences that meet the diverse needs of students. However, the journey from conceptualization to realization is complex, necessitating a deep understanding of community needs, financial intricacies, and the importance of a solid real estate development team. Inspired by the guidance provided in the report created by Capital Impact Partners, ‘The Answer Key: How to Plan, Develop, and Finance Your Charter School Facility (PDF)’, this blog series distills critical insights and strategic advice, tailored to the unique challenges faced by charter school operators:
A Thorough Concept: Discover the importance of crafting a comprehensive and compelling concept that aligns with community needs and educational goals.
Meeting Lender’s Expectations: Navigate the financial landscape with confidence, learning what lenders seek in charter school projects and how to effectively present your vision.
Assembling a Solid Real Estate Development Team: Understand the crucial role of assembling a skilled team to turn your educational vision into reality, from architects to legal advisors.
Closing out this series, we explore the crucial aspect of assembling a solid real estate development team for your charter school. A well-rounded team is necessary to navigate the multifaceted journey of opening a charter school.
The Core of Your Real Estate Development Team
A successful charter school project relies on the collective expertise of several key professionals and essential roles:
Project Manager: Often the linchpin of the development process, a skilled project manager oversees the project from conception through completion, ensuring milestones are met and the project stays within budget. Their experience in charter school projects can provide invaluable foresight and problem-solving capabilities.
Architect: The architect’s role is to translate your educational vision into a practical, regulatory-compliant design. Their expertise is crucial in creating spaces that are not only conducive to learning, but also inspire students and staff alike.
Legal Counsel: Given the complex regulatory environment surrounding charter schools, having knowledgeable legal counsel is non-negotiable. They navigate zoning laws, compliance issues, and other legal aspects to prevent unforeseen challenges.
General Contractor: Responsible for bringing the architectural vision to reality, the right contractor will manage the construction phase, ensuring quality, timeliness, and fiscal responsibility.
Selecting Your Team
Selecting the right professionals is about more than verifying credentials and experience. The Answer Key (PDF) suggests that all team members should have/foster:
Shared Vision: Team members should share your commitment to the school’s mission, understanding the broader impact of the project on the community;
Experience in Charter Schools: Professionals with specific experience in charter school projects bring a nuanced understanding of unique challenges and opportunities;
Community Engagement: Team members who value community input can contribute to a design and development process that reflects the needs and aspirations of the community your school will serve.
Team members should share your commitment to the school’s mission, understanding the broader impact of the project on the community
Fostering Collaboration
Collaboration among your team members can significantly influence the success of your project. Open communication and mutual respect among team members ensures that each professional’s expertise is effectively integrated into the project. Regular meetings and clear, shared goals help maintain alignment and momentum.
Building a solid real estate development team is fundamental to transforming your charter school vision into reality. By carefully selecting a team that not only possesses the requisite professional skills but also aligns with your educational mission and values community input, you set the stage for a successful charter school development. “The Answer Key” provides a framework for understanding the roles and relationships that will support your project from the ground up.
Collaboration among your team members can significantly influence the success of your project
Review “The Answer Key” in its entirety and use it as a resource as you plan and work through your charter school development. If you decide that you need financing, you can reach out to our Lending team to discuss your options; our Construction team is another resource to support you as your development progresses.
At Capital Impact Partners, we specialize in offering flexible and affordable financing to a broad spectrum of community development projects that yield significant social impact. We extend our support to educational projects that elevate communities and promote sustainable growth. Additionally, we provide extensive support and resources tailored to the unique needs of charter schools, helping to ensure equitable access to quality charter school education for all students, regardless of socioeconomic status, race, or ethnicity.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this fifth installment, we explore an essential financial tool in community development: loan refinancing.
What is Loan Refinancing?
Loan refinancing in the context of community development involves replacing an existing debt obligation with another under different terms. This strategy is often used to secure lower interest rates, extend repayment terms, or access additional funds for project development. Refinancing can alleviate financial pressure, provide more favorable terms, and free up capital for further investment into community-centric projects. If approved, the borrower gets a new contract that takes the place of the original agreement.
Transforming Communities Through Strategic Refinancing
Refinancing can play a pivotal role in sustaining and scaling community development efforts. It offers developers the flexibility to adjust their financial strategies in response to changing market conditions or project needs, ensuring long-term project viability and impact.
The Benefits of Refinancing
Refinancing offers several advantages:
Reduced Costs: Lower interest rates can significantly decrease the overall cost of borrowing.
Improved Cash Flow: Extended loan terms provide developers with better cash flow management, enabling them to allocate resources more effectively across projects.
Strategic Allocation: Access to additional funds allows for investment in other critical aspects of development, such as predevelopment costs and new projects.
Example: Capital Impact Partners provided a $10 million loan to refinance an existing loan on a 45,252-square-foot property located in Los Angeles. This refinancing was strategically executed to replace the existing loan and secure additional capital for soft costs, predevelopment, and approvals necessary for transforming the property. This loan enabled the conversion of the current vacant buildings into a six-story, 252-unit multifamily, 100 percent affordable apartment building targeting tenants living with low and moderate incomes, addressing the acute demand for affordable housing in Los Angeles.
For community developers looking to maximize the impact of their projects, understanding and utilizing refinancing can be a game changer. By adjusting financial strategies to better suit their needs, developers can ensure the sustainability and expansion of their community initiatives.
Check out our mission-driven lending page for more information about our products and to find out which might work best for you.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to navigate complex relationships, craft solid projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
In this final installment of our series, let’s explore the key elements that set a developer up for attracting investors for real estate development, as well as strategies for anticipating and meeting their needs.
Financial Statements and Bankability
Ensuring that developers’ balance sheets and other financial statements accurately reflect their business’ health is paramount to attracting investors for real estate development. Lenders and investors look for reliability, organization, and trustworthiness when evaluating potential projects. By conveying a deep understanding of the project, its financing strategy, and the market, developers can instill confidence and mitigate lender scrutiny.
“For the Bobbi project, I was able to prepare for lender scrutiny by knowing the deal inside and out better than any consultants on my project, and being able to articulate the vision, the financing strategy, and the market.” – Ronette (Ronnie) C. Slamin, Founder and Principal at Embolden Real Estate
Slamin: Ensuring that developers’ balance sheets and other financial statements accurately reflect their business’ health is paramount to attracting investors for real estate development.
Anticipating Investor and Lender Needs
Before approaching lenders or investors, developers must ask themselves critical questions about their project and financing strategy. Being upfront about personal finances, including credit score and debt payment history, is essential for building trust and credibility. By aligning project goals with lender portfolios and understanding their business models, developers can tailor their pitches to meet lender and investor needs effectively.
Professional Patience and Effective Communication
Patience is a virtue in real estate development, particularly during the funding and underwriting phases. Rushing the underwriting process can lead to misunderstandings and delays, so developers must approach it with professionalism and collaboration. Maintaining effective communication, especially in challenging situations, is crucial for building strong relationships, attracting investors, and hence securing financing.
By emphasizing transparency, aligning with lender objectives, and fostering collaboration throughout the underwriting process, developers can forge robust partnerships with lenders and investors, ensuring the financing needed for their projects.
Whether you are an experienced charter school operator refining your approach or an enterprising newcomer ready to break ground in the charter school education sector, there is always more to discover and master to advance your institution and widen your impact. This series is crafted to deliver crucial insights and practical advice to drive your charter school projects and overall mission forward.
At the Momentus Capital branded family of organizations, which includes Capital Impact Partners, CDC Small Business Finance, and Momentus Securities, we are dedicated to expanding capital and opportunities for underestimated communities, including those innovating in charter school education.
Charter schools stand at the forefront of educational innovation, offering tailored learning experiences that meet the diverse needs of students. However, the journey from conceptualization to realization is complex, necessitating a deep understanding of community needs, financial intricacies, and the importance of a cohesive real estate development team. Inspired by the guidance provided in Capital Impact Partners’ report “The Answer Key: How to Plan, Develop, and Finance Your Charter School Facility (PDF),” this blog series distills critical insights and strategic advice, tailored to the unique challenges faced by charter school operators:
A Thorough Concept: Discover the importance of crafting a comprehensive and compelling concept that aligns with community needs and educational goals;
Meeting Lenders’ Expectations: Navigate the financial landscape with confidence, learning what charter school lenders look for and how to effectively present your vision;
Assembling a Solid Real Estate Development Team: Understand the crucial role of assembling a skilled team to turn your educational vision into reality, from architects to legal advisors.
In the second installment of this series, we turn our focus to understanding what charter school lenders look for. Financing is the lifeblood of any charter school project, transforming visions into tangible institutions. We will highlight crucial factors that can influence a lender’s decision to fund your project.
Financial Stability & Revenue Streams
One of the core considerations for lenders is the financial stability of your charter school. Our report emphasizes the importance of demonstrating a reliable and diversified revenue stream. One of the elements charter school lenders look for is seeing your school has a solid plan for maintaining operational sustainability, which often includes state or federal per-pupil funding, grants, and other fundraising efforts.
Lenders need to see that your school has a solid plan for maintaining operational sustainability
Realistic Enrollment Projections
Lenders pay close attention to your enrollment projections. Accurate and realistic estimates are crucial as they directly impact the school’s revenue and financial viability. The Answer Key advises operators to conduct thorough market analyses to support their enrollment numbers, showcasing a clear demand for the school within the community.
Strong Leadership and Management
The expertise and experience of your school’s leadership and management team are critical to securing financing. Charter school lenders look for teams with a proven track record in education and school management. Demonstrating that your project is guided by knowledgeable and skilled professionals can significantly enhance your credibility with potential lenders.
Well-Defined Facility Plan
A well-defined facility plan – including details about the location, size, and condition of the property – is essential for lenders. Our report highlights the need for a clear understanding of the costs associated with acquiring, renovating, or constructing a facility. A comprehensive plan that addresses these aspects, supported by realistic cost estimates and timelines, is vital for gaining lender confidence.
Demonstrating that your project is guided by knowledgeable and skilled professionals can significantly enhance your credibility with potential lenders
Compliance & Accreditation
Ensuring compliance with all relevant educational regulations and working towards accreditation are key factors that lenders consider. Charter school operators are advised to be well-versed in state and federal education laws and to outline their strategies for meeting these requirements. Accreditation, or the process to achieve it, signals a commitment to educational quality and standards, making your project more appealing to lenders.
Moving Forward
Understanding and addressing these critical areas can significantly improve your chances of securing the necessary financing for your charter school project. By focusing on financial stability, enrollment projections, strong leadership, a well-defined facility plan, and compliance with educational standards, you present your charter school as a viable and attractive investment.
At Capital Impact Partners, we specialize in offering flexible and affordable financing to a broad spectrum of community development projects that yield significant social impact. From community health centers to affordable housing, we extend our support to educational projects that elevate communities and promote sustainable growth. Additionally, we provide extensive support and resources tailored to the unique needs of charter schools, helping to ensure equitable access to quality charter school education for all students, regardless of socioeconomic status, race, or ethnicity.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this fourth installment, we take a look at business acquisition loans, a vital tool in the realm of community development allowing developers to broaden their reach and create lasting impact.
What is a Business Acquisition Loan?
A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives.
Two noteworthy business acquisition loans within the realm of community development, and which we offer at Capital Impact Partners, are cooperative loans, and working capital line of credit loans. One of the most significant steps a business can take is acquiring another business or securing essential working capital. These pivotal moments can be catalysts for growth, job creation, and lasting community impact.
Unlocking Opportunities Through Cooperative Business Acquisitions: Cooperative Business Loans
Cooperatives have long been champions of community-driven economic development. Whether it is workers seeking to purchase a business from their employer, or a group of farmers joining forces to better serve their local markets, business acquisitions can be a game-changer.
Broaden impact: acquiring an established business can expedite a cooperative’s growth and its ability to serve the community.
Leverage expertise: gain access to experienced staff, established customer bases, and valuable industry knowledge.
Ensure stability: preserve jobs, retain local ownership, and maintain the legacy of the business being acquired.
Capital Impact Partners has closed a business acquisition loan to Ward Lumber Worker Cooperative, Inc. (WLWC) to support the acquisition of 100 percent of the capital stock of Ward Lumber Co. (Ward), representing the conversion to employee ownership of the company and all of its assets. The transaction marked the first employee ownership transition, or worker co-op conversion, and the largest of its kind in the North Country region of New York State.
This business acquisition that led to Ward’s conversion to the employee ownership model helps to continue to support the region’s farm and construction industries, provide for above-average employee retention and wages, sustain the future of the enterprise, and build wealth in the community through ownership.
The Lifeline for Day-to-Day Operations: Working Capital Line of Credit Loans
In the ever-evolving world of business, maintaining a healthy cash flow is paramount. Working capital lines of credit are the financial lifelines that enable businesses to navigate the ebb and flow of daily operations effectively. These small-business loans are a type of short-term financing that is used to cover a business’s operating expenses, such as rent, payroll or inventory.
Working Capital Line of Credit loans offer several advantages:
Flexibility: borrow what you need when you need it, providing the agility required to seize opportunities or address unforeseen challenges.
Stabilizing cash flow: ensure that your business can cover operational expenses, pay suppliers, and meet payroll without interruptions.
Fueling growth: invest in inventory, equipment, or marketing initiatives that drive business expansion and community impact.
In 2020, Capital Impact Partners closed on a Working Capital Line of Credit loan to The Achievable Foundation (Achievable), an organization focused on health and wellness, and supportive services for people with disabilities based out of Los Angeles, California. A year prior, a few setbacks had negatively impacted the business including the loss of providers, amongst other difficulties. This line of credit allowed Achievable to replenish their cash and weather the operational challenges that emerged that year.
Working Capital Line of Credit loans represent a necessary lifeline for organizations such as Achievable, that more often than not find it challenging to receive financing from traditional lending institutions, particularly in rough times. This loan has helped Achievable stay operational, and carry out their mission of serving their communities.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
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