Sources of Debt Capital

How much debt capital the cooperative can borrow depends on how much risk (equity) capital members initially invest, cash flow, quality of management, and the degree of risk in the venture. Members should contribute equity capital amounting to at least half the total capital requirements. But, it usually takes several years of operations to reach this goal. 

Long-term credit is the usual way of acquiring part of the money to finance land, buildings, and equipment. The period of the fixed asset loan depends on a number of factors, but it is usually related to the facility’s projected life.

The committee should explore various sources of long-term loans and recommend the source that can supply the financing best suited to the proposed cooperative. Among sources of facility loans are State offices of USDA’s Rural Development, CoBank, St. Paul Bank for Cooperatives, National Cooperative Bank, programs of commercial banks, credit unions, and insurance companies. Other financial arrangements may be available that are temporary or unique to the new cooperative venture.

Operating capital may be obtained through short-term loans (1 year or less) after the cooperative becomes established. A new cooperative, however, can obtain only part of its operating funds from short-term loans. Member equity must make up the balance.

Sources of short-term credit include credit unions, commercial banks, banks for cooperatives in the Farm Credit System, and the National Cooperative Bank. The committee should explore all sources and recommend the lender that best meets the requirements of the proposed cooperative

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