HOW TO FUND A WORKER CO-OP
We’ve spent two years getting a worker-owned co-op from conception to construction. The business is a for-profit bakery in the heart of Calgary, inspired by and modelled after the Cheese Board Collective and Arizmendi Association of bakeries in California – and their nearly 50 years of success.
As a worker co-op, following hundreds of years of tradition and many current working (thriving) examples, we've eliminated the hierarchy common in most workplaces. Our business is structured so that all our members are workers, all our workers are directors, and all our directors co-owners of the business. In this way, rather than a single person or minority taking all of the risk, and then reaping all the reward, we're attempting to distribute both risk and reward equitably among the whole team. As well, all of the labour – from baking bread and washing dishes to working the till, from scheduling and ordering to accounting, from policy development and communications to hiring – is performed by all of the membership. By doing this we aim to create and sustain transparency and democracy in our workplace while allowing for maximal skill development and personal growth for members.
The business began by baking out of rented commercial kitchens, creating goods for sale mostly at local farmer’s markets. While successful, what became quickly apparent was the great difficulty in getting the quantity and quality we wanted using sub-par equipment under strict and limited timelines. This caused our collective to start looking for space of our own, to explore buying our own equipment, to grow our membership, and to seek out a wide variety of funding options to make this all happen.
As a starting place in our adventure – even with the long history of worker co-ops all over the globe, the ubiquity of co-ops in the Prairies, the local popularity of credit unions, large co-ops like MEC, The Co-operators, Calgary Co-op grocery stores and gas stations (and despite our business being incorporated under the Alberta Co-operatives Act) – virtually everyone we speak with leaves us feeling as if we're charting all new territory. Our worker-owned co-operative model, though soundly grounded in and modelled after the best practices of other proven businesses, stumps lawyers, financial institutions, landlords, architects, and others – forcing us to provide what are essentially info sessions about our structure and aims. These conversations usually involve attempting to convince these folks not just that such a venture is structurally sound but often also of the model’s moral and philosophical footing. (“So let me get this straight, you’re questioning the validity and reasonable expectation of workplace democracy and equal wages?”...) While there are plenty of folks super excited about what we’re up to, for whatever reason this simple model appears a challenge for some people; and a more serious problem for institutions working with rigid, outdated policy.
To date we’ve seen simple, easily-amended issues, like that with our architect: who in their first draft of our space placed, out of habit, a large office with a window overlooking the main production area – as a kind of administrative panopticon... Other incongruencies are more deeply embedded, more consequential. For example, being a tiny start-up with considerable equipment and building costs (even for a bare-bones operation, buying as much used equipment as is reasonable, restricting our front-of-house costs, and doing as much as we can ourselves) our ability to raise all the needed funds is somewhat limited. As a for-profit co-op we are neither considered a social enterprise (though we very much are), we cannot entice investors with a tax receipt as a charity may, nor are we eligible for the abundant foundation funding here in Alberta. Instead, to date, to fund our activities directors have purchased member shares, we've developed an investment share option for our associates, had a crowdfunding campaign, received a donation from an angel investor, and have taken a loan from the Canadian Worker Co-op Federation. Even with all this opportunity and generosity, funding challenges abound. With credit unions and other local co-operatives (all mandated to support other co-ops) reluctant to invest or even offer a small, low-interest loan, we find ourselves forced to take out an unfavourable loan from a bank.
And here’s where it gets sticky. Though the federal government will guarantee 75% of small business loans, the most favourable loan option we've found is with an institution unwilling to take any risk whatsoever. Instead, if we're to receive any funding at all, they require us to put up the remaining 25% ourselves, in cash, as a guarantee. Even if this seems reasonable, this is only part of the story. The guarantee (our cash) is locked in for the length of our loan repayment period. So even if the amount we owe is only a small fraction of the amount of our guarantee we still cannot use any part of our guarantee at any time – even to pay the remainder of our loan, and even if this were to come after many years of paying interest, amounting to far more than the guarantee itself. And on top of this, as you can guess, the only way to get our loan repayment to manageable monthly amounts is with a very long amortization; meaning that the bank (as always) gets an absolutely exorbitant and burdensome sum as interest on “their” (zero-risk) “loan”.
(While this may be typical bank behaviour, one may be impelled to ask what our cash and federal government backing guarantees? The precarity of our business, perhaps? Maybe just the further enrichment of a financial institution with countless billions in assets.)
Despite significant institutional discouragement like this, we've been able to come up with 80% of the guarantee we need to secure some of the money we need as a loan. We then negotiated with the bank to allow us, rather than putting up the rest in cash, to cover the outstanding 20% with a personal guarantee. But, instead of the co-op making this guarantee as a collective, as feels totally appropriate, the bank insists each member guarantee the total remaining amount personally (or 20% x 8). From where I sit, and from the perspective of a co-operative, this whole interaction with the bank feels antagonistic and not at all supportive of local small-business creation (or, in my mind, the future of our economy.) All of this seems both in contrast to their abundant advertising slogans and stated institutional aims, as well as the aims of the federal government program they’re taking advantage of and (hugely) profiting from.
Keep in mind that all of this is happening in a certain context. What are we doing and where are we doing it? We’re attempting to create well-paid, sustainable, and transferable jobs in a city and province with the highest unemployment rate around – the highest in a generation… So, if ever, surely now is the time for banks to use their ever-growing and unprecedented reserves to support local entrepreneurs: the folk who’ve remained through the recession, aren’t going anywhere, and wish to support and enhance their community for a resilient and prosperous tomorrow. No?
But this is still not the whole financial picture. Even if all of the above funding comes together, we still remain short a significant amount of money, as our bank loan will only cover equipment and building costs. The bank will not loan nor release funds for any of the many other expenses we have: in the form of legal, design, and project management fees, engineering and permitting fees, training and testing costs, supply, production, and promotion costs, etcetera. This is typical, and typically prohibitive. And yet best practice suggests that, in addition to all of the above, we also need considerable working capital ($100,000?) to ensure continued operation through our opening year.
So, given my experience to date, there seems tremendous information and funding gaps (and traps) into which all co-ops will likely stumble, and quite possibly fall. Despite all our victories, sizable personal commitments (in the form of money but also thousands of unpaid hours of work from professional bakers and chefs, communications specialists, co-op developers, community organizers, accountants, realtors, and others) and pure luck to date, without owning our own commercial real estate or having considerable lottery winnings to shower upon our project the way ahead remains uncertain.
Of course we would like to remedy these issues ourselves following the proven and much-praised Arizmendi model, using our profits to help seed new co-ops (and we are in fact mandated to do so); yet unless we can get up and running and have a chance to make a profit this will not be possible.
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