Because of their unorthodox ownership structures and management practices, cooperatively owned businesses don’t fit neatly into most lenders’ and incubators’ boxes. But one organization has stepped forward to fill the gap.

Seed Commons is a nationwide network of loan funds and incubators that specialize in supporting and investing in cooperative businesses. Working as a group, they collectively share the burden of everything from fundraising to support their work to vetting possible investments. It’s a network built largely by and mostly for worker-owned cooperatives. Since inception in 2016, Seed Commons has enabled its members to make more than 100 loans so far, adding up to more than $10 million.

“This is about using our collective power to create a new financial institution,” says Kate Khatib, co-director of Seed Commons and a worker-owner at Red Emma’s, a cooperative restaurant and bookstore in Baltimore. “We’re fundraising collectively, raising the investment capital collectively and figuring out how to deploy that capital most effectively in our individual communities.”

Seed Commons has roots in the frustrations that Red Emma’s went through several years ago, when the co-op needed financing for a move to a new location. Already an established business with deposits held at several banks, Red Emma’s went to all of them, and none was willing to finance on terms that worked for the co-op. So they hatched a plan instead to create what they eventually named Seed Commons, bringing together worker co-op incubators and loan funds in cities across the country.

Most Seed Commons network loans are small, a few thousand dollars in working capital here or maybe $15,000 or $20,000 to build out a food truck there. It’s strategic — insulating the cooperatives from larger debt until they are up and running or until they have more experience operating and managing themselves. As the co-ops grow and repay earlier loans, second or third loans tend to be larger amounts.

The Seed Commons network also makes its loans using royalty-based financing — which it likes to call “non-extractive financing.” It means that the borrowers make payments as a percentage of monthly profits — if there’s no profit in a given month, they don’t need to make a loan payment. Not only is it extremely friendly for the underlying borrower, it also means the local loan funds are strongly incentivized to provide adequate incubation and other support to ensure the success of the underlying co-ops.

“Creating your own loan fund, all of the compliance issues, all of the fundraising, all of the challenges, we couldn’t believe how much it would take,” says Kristen Barker, executive director of Co-op Cincy, a Seed Commons member in Cincinnati. “We were founded in 2011 and we wanted to start making loans to worker co-ops ourselves but we just put it on the backburner until the opportunity to join Seed Commons.”

Co-op Cincy to date has made 13 loans totaling nearly $300,000 to worker-owned cooperatives and their members in Cincinnati. The largest was a $130,000 loan to Our Harvest, a worker-owned urban farm cooperative just across the river in Newport, Kentucky.

Read the full article about worker-owned cooperatives by Oscar Perry Abello at Next City.