“You’re not going to finance the movement with conventional financing.” So noted Clark Arrington, who was inducted last year into the national cooperative hall of fame and is a senior fellow at Seed Commons, a community development financial institution (CDFI) that supports worker co-op development in 30 communities. Arrington’s comment encapsulated a central theme of a day-long session on “Money and Movements” held last month in Philadelphia at the 2022 conference of the US Federation of Worker Cooperatives.

At NPQ, we have regularly looked at the question of community finance, including the need to develop more accurate standards for underwriting projects and assessing risk. In Philadelphia, in a series of four interconnected panels organized and moderated by Joe Marraffino, a loan and outreach officer of the Cooperative Fund of the Northeast (CFNE), participants explored these themes. The first panel set the stage by looking at the role of CDFIs and other sources of capital. The remaining three panels offered a series of case studies that delved into the details of what is working—and not working—in the field, as well as identifying potential solutions to ongoing financing challenges.

The opening panel was titled “Understanding Socially-Aligned Capital.” Its five panelists were Daniel Wallace of Coastal Enterprises Inc. (CEI), a statewide CDFI in Maine; Josh Glickenhaus, director of lending at Local Enterprise Assistance Fund (LEAF), a Massachusetts-based CDFI; Sarah Kaplan, an attorney at the San Francisco Bay Area-based Cutting Edge Counsel, which advises community-based businesses on how to raise money through direct placements and other equity strategies; Zoe Schlag, a partner at Common Trust, which structures conversions of existing businesses into employee-owned trusts that distribute annual profits to workers; and Ellen Vera, director of co-op organizing and development at Co-op Cincy, a nonprofit co-op development incubator and small community-based lender in Cincinnati, Ohio.

Three themes emerged from their conversation:

  • Where Does the Money Come From? Schlag from Common Trust noted that conversions to employee ownership trusts commonly involve some form of seller financing, which is a fancy way of saying that business owners do not receive all the proceeds from the sale of their business in cash, but instead receive a significant portion of these proceeds through payments over time as the sold business generates profit
  • The tension between the need for local knowledge and the benefits of scale: Assuming the money is somehow raised, how is it deployed? “Local autonomy is critical to mission,” observed Glickenhaus. Schlag concurred that “Critical for success is integration of capital scale and local knowledge.” This, however, is easier said than done.
  • The tension between debt and equity: A major challenge in the field is that while loans to support employee ownership are relatively easily to obtain, equity investment is not. As Wallace pointed out, “Debt is the most conservative” tool of finance available.

Read the full article about the community finance movement by Steve Dubb at Nonprofit Quarterly.