Financially support worker cooperatives
Worker cooperatives have the potential to meet the needs of a small business sector where a large percentage of owners are retiring. Local, state, and federal business loan funds and technical assistance grants can help ensure that local businesses do not close, even as the business owners retire.
Invest in local financial support for worker coops, including revolving loan funds, loan guarantees, and grant programs for both worker cooperative businesses and the technical assistance providers to serve them.
For example:
- In 2018, the Department of Commerce of the City of Philadelphia has allocated funding for for-profit or non-profit organizations to provide technical assistance to cooperatives and identify potential co-ops that need technical assistance.
Develop state-level financial support to amplify the effects of local support.
For example:
- State financial strategies could be modeled on New York State’s business loan program. Though currently unfunded, that program is intended to provide direct financing to businesses and loan guarantees to banks and credit unions funding NY businesses. It serves as a model for states looking to promote worker cooperative businesses.
Allocate a percentage of funding from the CDFI Bond Guarantee Program for worker-cooperative development.
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The CDFI Bond Guarantee Program provides $1 billion of long-term capital to community development financial institutions, particularly in underserved communities. CDFIs must be equipped with education and training on employee-owned businesses, particularly about the role that worker-owned firms can play in managing the business transitions of small business owners and large corporations that wish to sell their businesses and make multi-year loans available for this purpose.
Expand innovative investment vehicles for worker cooperatives.
States must modify state securities laws to enable worker coop financing. State securities laws could be adapted in three ways to enable more substantial financing for worker cooperatives:
- Member Share Financing: Every state should exempt from securities registration the sale of cooperative memberships to new worker-owners. The exemption should be at least $1,000 and preferably much higher, like $20,000, given the capital-intensive nature of many businesses.
- Other Member-Sourced Financing: In addition to exempting the sale of membership shares from securities registration, states should exempt other forms of capital that worker-owners provide to their own cooperatives.
- Financing from Non-Workers: States could facilitate financing of worker cooperatives by creating a securities registration exemption when non-worker-owners contribute capital to the cooperative, so long as the voting and profit share for those outside investors are strictly limited, to preserve the integrity of the cooperative structure and values.
For example:
- The California Cooperative Corporations Statute makes the sale of shares of up to $1,000 to California residents exempt from securities registration Those “community investors” receive voting rights, but only on large decisions, such as dissolution.
- Municipal Bonds: Municipal bonds and bonds through local banks can be raised to cover capital costs involved in starting a worker coop or to help finance cooperative conversions. These bonds would be available for purchase by local residents and potentially others as well.
Give workers a right of first refusal to buy businesses that are put up for sale or threatened with closure.
A workers’ right of first refusal grants employees the right to convert an enterprise into a worker coop when an owner decides to sell the business. When the owner decides to sell, the employees have a time period within which only they can bid to purchase the business.
For example:
- H.1026 in Massachusetts is being proposed, which requires owners of business going up for sale to alert their workers and give them first right of refusal. Currently the bill only requires that the workers and the Office of Employee Involvement and Ownership in MA is notified; we recommend that local cooperative development institutions also be alerted when a business is going up for sale.
Provide student loan forgiveness for individuals employed at a worker cooperative.
- Allow employees of worker cooperatives to qualify for federal student loan forgiveness programs.
