Finding Capital the Ethical Way

Co-operatives have often struggled to access capital, as routes available to other business models are not always appropriate. The International Co-operative Alliance’s Blueprint for a Co-operative Decade states:...

Co-operatives have often struggled to access capital, as routes available to other business models are not always appropriate. The International Co-operative Alliance’s Blueprint for a Co-operative Decade states: “Co-operatives need access to capital if they are to be established, grow and flourish. The aim is to secure reliable co-operative capital while guaranteeing member control.”

It is no longer just about going cap in hand to the bank; depending on your co-operative’s legal structure, nature of business and length of time in business, there are now a range of other options available.

Members’ investments

Possibly one of the most obvious ways of raising capital is to seek investment from members, for example by issuing community shares. A form of withdrawable share capital, community shares can only be issued by co-operatives or community benefit societies. The Community Shares Unit (CSU) can offer support and advice to businesses which are considering issuing community shares, and recently introduced the Community Shares Standard Mark, a voluntary compliance mark for share offer documents.

Community share offers usually seek to raise a fixed amount of capital to launch or expand a business. Alternatively, you could look to attract regular member investments. The Phone Co-op, for example, allows members to invest anything between £1 and £100,000 in share capital.

Other societies, such as The Midcounties Co-operative, offer their members the opportunity to purchase share bonds, which offer a fixed rate return.


Crowdfunding has a clear synergy with the co-operative way of doing business. Crowdfunding platforms enable you to raise significant amounts of capital through lots of people pledging relatively small amounts of money. Most businesses offer small rewards, such as branded products, in exchange for pledges. Crowdfunding has become increasingly popular in recent years. One of the biggest UK-based sites is Crowdfunder, which is proving popular with small co-operatives; Leeds Bread Co-op raised more than £8,500 in 42 days through the site.

Leeds Bread Co-op raised over £8,500 in 42 days through Crowdfunder
Leeds Bread Co-op raised over £8,500 in 42 days through Crowdfunder

Business loans

Some loan companies won’t lend to co-operatives, and others don’t really understand the sector, so the process can be rather painful. However, there are organisations that are specifically aimed at co-op and similar businesses. The Co-operative Loan Fund is funded and run by co-operatives, and only lends to co-ops. It states: “Our approach to lending is ethical, accessible and sympathetic to your co-op’s needs.” Loan recipients range from village pubs and cafés, to energy co-ops and design businesses.

Community development finance institutions (CDFIs) lend money to businesses, social ventures and individuals. In 2014, they helped more than 50,000 UK customers, with loans of £173m. The oldest CDFI in the UK is Co-operative and Community Finance, which has been operating for more than 40 years and exclusively serves the co-operative and social enterprise sector. It will lend up to £200,000 to support co-operative business needs, including employee and community buy-outs, new enterprises, expansions and community share issues. “Co-operative and Community Finance is funded by co-ops, for co-ops,” says development manager Ian Rothwell. “It was set up in 1973 to address the difficulties that co-operatives faced when trying to access finance. Unlike some other lenders, we don’t take personal guarantees, and will support both new and established co-operatives.”

If you’re a relatively new, small co-operative, you may be eligible for a loan from Start Up Loans. This government-funded scheme provides advice, loans and mentoring to businesses which have been trading for less than two years. A spokesperson from Start Up Loans explains: “Not only does the scheme offer a 6% fixed rate loan, but all our loan recipients are entitled to free business support, including exclusive deals with our corporate partners, such as LawBite and Paypal. They are also given access to a free expert business mentor. As of July 2015 we will have supported over 30,000 individuals to turn their business ambitions into reality.”

The loans are personal loans, so not suitable for all co-ops. Loans will be provided by a third party, many of whom are trusts, foundations or credit unions, but you may want to check exactly who will be loaning you the money before you apply.

Funding for social enterprises

Social enterprises can access funding streams from organisations such as Big Issue Invest, Bridges Ventures, UnLtd and The Power to Change. Big Issue Invest seeks to assist a “diverse mix of socially driven organisations whose activities achieve a range of social outcomes.” Sectors invested in include employment and skills development; mental health; health and social care; financial inclusion; and community-led renewable energy.

Ethical banks

Of course, banks shouldn’t be discounted altogether. There are ethical options available, including The Co-operative Bank, Triodos and some building societies. Rebecca Pritchard, head of business banking at Triodos Bank, explains why the bank supports co-operatives, particularly housing co-ops: “Working with groups who are looking to help alleviate the lack of affordable housing remains a key objective for Triodos. This is why we continue to work with a wide range of housing co-operatives – over the years we have successfully helped many of these to acquire their first property. Other co-operatives Triodos lend to include the Community Farm near Bristol and Essential Trading.”

Local support

Grants, loans and advice are also available through local foundations, trusts and business development organisations. It may be worth contacting your local chamber of commerce to see if they can point you in the right direction.

Useful links

The Capital Finance of Co-operative and Community Benefit Societies

The Co-operative Community Shares Fund

Community Shares Unit

Community Development Finance Association

Please note that the author and Co-operative News are not linked to any of the organisations mentioned and cannot accept responsibility for the advice given.

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