Member Loans FAQ
By now all members should have received information about the member loan program that we are relying on to fund our move to Lincoln Square this summer.
I have spoken to several members over the course of the past couple of weeks and have assembled this list of answers to the frequently asked questions:
What is the member loan program? I’m glad you asked! As a co-op we have a unique way to fund the move and expansion of our store. The members can loan money to the co-op to finance part of the project. This is a loan and not a donation so the money is to be repaid plus any interest that the member elects to receive.
How much money do we need to raise in member loans? $250,000
Why does the co-op need this money? This is a big project. We need to build out the store in the empty shell at Lincoln Square. Since this is a new space for the co-op we have to meet all of the health code requirements. Obviously the bigger space will require more inventory so we have to be able to bring that in. The new space will need more staff to operate the additional cash register and the new deli. We have to have money to pay their wages while they are being trained and the new store is opening. Finally, the move and the new location are going to disrupt the usual business flows, so we need some cash to tide us over until the new space begins to pay its way.
How do we know we need this money and that we can pay it back? Jacqueline, working in conjunction with an organization that has helped most co-ops in the country, has developed a detailed financial plan. This spreadsheet budgets costs for all of the details associated with this project. It also shows sales projections for the next ten years. There are more details in the member loan information packet.
Why don’t we just borrow the money from banks? We will be borrowing some money from local banks and co-operative funds, but the interest rates on these loans will be high and so we want to minimize them to keep our costs low. Additionally, banks typically don’t lend money to a business unless the owners also have a big financial stake. We are the owners and so we demonstrate our commitment through these loans.
What is the minimum loan amount? $1,000 is the minimum. To help us reach our goal we are looking for an average loan size of $3,000.
Why is there a minimum? We have to raise a lot of money. Each of the loans will require a fair amount of paperwork and on-going administration. If we wind up with a lot of small loans we will have a hard time keeping up with the bookkeeping and reporting.
What interest rate will the loans pay? We can offer modest interest rates depending on how much money you are able to lend. You get to choose an interest rate up to 4% on loans over $9,000 smaller loans have a maximum rate of 3%. Choose the lowest rate you can afford to keep your co-op’s costs as low as possible. Don’t think of this as a monetary investment with a competitive rate of return. It’s an investment in your community with even greater, but intangible returns.
How long are the loans for? We need loans that are paid back in 5, 6,7, ,8, 9, and 10 years. You can choose which year you want your loan paid back in. We have to evenly spread the loans across of each of these six years so once a year is filled up we can’t accept any more loans for repayment in that year.
Why can’t I loan money for a shorter time? Since the bank loans are more expensive than the member loans the financial plan focuses on repaying them first. Once the bank loans are repaid we start repaying the member loans
How much money has been committed so far? Just check out the carrot on the board inside the store! We will fill in the carrot as we receive new commitments. Help us fill the carrot up.
How can I find out more? Call or email me and I can send you an info packet via email or paper copy via regular mail.
I can’t wait! How can I sign up now? That’s what we need to hear! You need to read the info packet so you know what you are getting into. Call or email me and let me know how much you want to loan, what interest rate you need, and how long the loan will be for. I’ll write up contracts and send you the paperwork. Everything can be done by mail. It’s quick! It’s painless! It’s a great way to invest in your community!
We are off to a great start, but we need to raise this money by the end of March to be able to carry on. Don’t delay – step right up!
Any more questions? Contact me!
Ben Galewsky
Board Member
384-2033