Editing Cooperative (section)

== Cooperative financing ==
The issue of finance in cooperativism is one of the most importance. Since the failure rates of cooperatives are lower than for conventional firms,<ref name=":8" /><ref name=":9" /> the financing schemes used by them are at least as successful as for conventional firms.

One of the success factors lies in the fact that cooperatives use a different arrange of financing schemes

=== Self financing (social base) ===
According to [[Gianluca Salvatori|Gianluca Salvatore]] and [[Riccardo Bodini]], self-financing schemes include the act and the practice of using one's own capital to provide funding for an enterprise. The main advantage of self-financing is that it sets the cooperative free from outside influence and debt, but the capacity to expand the coop might be constrained by the lack of capital.<ref name=":10"><sup>Salvatori, G.; Bodini, R. (2023). ''Financing for the Social and Solidarity Economy''. In Yi ''et al.'' (2023). ''Encyclopedia of the Social and Solidarity Economy''. Cheltenham and Northampton, MA. Edward Elgar Publishing Limited in partnership with United Nations Inter-Agency Task Force on Social and Solidarity Economy (UNTFSSE)</sup></ref>

==== Capital by members ====

{{see also|Capital (economics)}}
This is the main form of financing in cooperatives. Usually, workers cooperatives do not only socialize the labor force, but also a part of the economical wealth of each member, that is put in a pool together with the rest of contributions, and that constitutes the capital of the cooperative. Usually, future members have to socialize a certain amount of money to the cooperative before they can become formal members.<ref name=":10" />

The most common way to do it all at once before joining the cooperative, but other financing schemes have been proposed. For example, some cooperatives do not ask for an initial investment, but rather require workers to work for a certain period of time, while retaining a percentage of the wage, until the worker has paid all the requirements and can become a formal member of the cooperative.<ref name=":10" />

Usually, when the worker decides to leave the cooperative, all the money invested will be returned to the worker.

The amount required will vary depending on a lot of factors, such as for example:<ref name=":10" />
* The type of cooperative: if it is a big industrial cooperative, the amount required will probably be higher than for a small services cooperative.
* The current budget of the cooperative: if a cooperative is already economically well established, probably the requirements will be lower. However, if the cooperative is still young and still requires a lot of investments, the initial requirement will be higher.<ref>{{Cite journal |last1=Duffy |first1=Michael |last2=Shi |first2=Chenxia |date=2023 |title=The Curious Case of Stakeholder Ownership: Theoretical Insights into the Niche Persistence of the Cooperative and Mutual Form Across Advanced Economies |url=http://dx.doi.org/10.2139/ssrn.4359271 |journal=SSRN Electronic Journal |doi=10.2139/ssrn.4359271 |s2cid=257010940 |issn=1556-5068}}</ref>

==== Social loans ====
Occasionally. if the situation requires it, workers of the cooperative can decide to put some more money as an investment, which can later be returned.<ref name=":10" />

=== Cooperative resources ===

==== Gross profits ====
If the cooperative is based on selling products or services, a part of the finance comes from the profits that they get from their activities.<ref name=":10" />

==== Proceeds from assets ====
A cooperative can have different assets from which it can get money without having to sell those assets. For example, if the cooperative has money in the bank, and the bank gives interests, it can generate some more money. Or for example, if the cooperative owns a place and rents it, it can get some more money out of it.<ref name=":10" />

==== Balance sheet assets ====
Assets can also be converted to money. For example, if the cooperative owns shares of another company, they can sell them and turn them into liquidity. Or if the cooperative owns a building, it can sell it. Different types of assets can be converted to liquidity with different levels of ease: for example, selling shares is easier and less time-consuming than selling land, which might take months. Thus, shares are much more easily converted to liquidity than land.<ref name=":10" />

=== Financial grants ===
[[Financial grant]]s, that are awards typically given by foundations or governments, can also be a source of financiation for cooperatives. They differ from loans in the fact that they under most conditions they do not have to be paid back. Some grants have waiting periods before the grantee can take full ownership of them.<ref name=":10" />

==== Donations ====

{{see also|Donation}}
They are usually in the form of cash, but can also be in the form of other [[asset]]s. Donations are specially recommendable if the cooperative has a strong aim for social impact and mutual aid, in which case individual or collective donors might be interested in donating.<ref name=":10" />

==== Crowdfunding ====

{{see also|Crowdfunding}}
Crowdfunding is a way of sourcing money for a project by asking a large number of contributors to individually donate a small amount to it. In return, the backers may receive token rewards that increase in prestige as the size of the donation increases.<ref name=":10" />

A successful example of how to finance a workers cooperative with a crowdfunding is the case of the cooperative of the [[Collettivo di Fabbrica GKN]] – [[Insorgiamo!]], who, after occupying and taking back the control of a [[GKN]] factory in [[Florence]], they began a crowdfunding campaign to get the initial money needed to create a cooperative that included all the workers that previously worked there. They used that money to make the initial investments to reconvert the factory to manufacture bicycle parts, with a [[sustainability]] goal.

==== Foundations and Governments financing ====
Especially for [[Social and solidarity economy|SSE]] cooperatives, one way to get finance is getting [[Grant (money)|grants]] from governments or private organizations. The latter are usually related to philanthropy. The difference with other types of grants is that they do not require any previous conditions of challenges that need to be achieved.<ref name=":10" />

==== Challenge grants ====

{{see also|Challenge grant}}
Challenge grants are funds disbursed by governments, foundations and trusts on completion of challenge requirements. The challenge refers to the actions or results that must be achieved before money is released. The challenge could require a new solution to an existing problem that had been ignored. Additional requirements could be specified, from programme certification to member participation. An example of a challenge grant would be money that is given by a bank if the cooperative increases membership by a certain amount.<ref name=":10" />

=== Lending ===
Lending or debt instruments provide borrowers with funding in exchange for repayment of this funding along with interest, based on predetermined timeframes and interest rate terms. The provision of funding might require guarantees.<ref name=":10" />

==== Concessional/Flexible Loans ====
Concessional and flexible loans include special features such as no or low interest rates, extended repayment schedules, and interest rate modifications during the life of the loan.<ref name=":10" />

==== Crowdlending ====

{{see also|Crowdlending}}
Crowd lending, also known as [[peer-to-peer lending]], is the practice of lending money through online services that directly match lenders with borrowers. Lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates.<ref name=":10" />

==== Social bonds ====
For example, when the bank provides sums of money as donations or financing at competitive conditions in support of initiatives that favour social innovation.<ref name=":10" />

=== Equity investments ===

{{see also|Equity (finance)}}
An equity investment is money that is invested in a company by purchasing shares of that company. Some cooperatives use that as a source of money. In cooperatives equity investments are usually not used, since it is something that is generally believed to go against the principles of cooperativism (the [[Rochdale Principles]] themselves limit the equity investments).<ref name=":10" />

==== Direct equity investment ====
Direct capital contribution to a project without the guarantee of repayment; the return on a direct equity investment will depend on the performance of a project/company over the investment period.<ref name=":10" />

==== Financing members ====
Especially at the start of a cooperative, this is used in some cases. It involves a person or a legal entity that, with a financial contribution, favours the establishment of a company and the carrying out of the social activity. Typically, they make part of the initial investment, and once the company is established, they resell all or part of the subscribed shares.<ref name=":10" />

==== Other forms of equity investments ====
Other forms of equity investments used by cooperatives are: [[equity fund]]s/[[mutual fund]], quasi-equity, [[equity crowdfunding]], [[social venture capital]]/[[impact investing]], [[patient capital]], etc.<ref name=":10" />

=== Redistribution of profit ===
Through all these financial means, a cooperative can create a financial profit. The next set of critical financial decisions becomes how to distribute that profit. There are different forms of redistributing the benefit.<ref name=":11">{{Cite web |title=Distributing Returns – Cooperatives |url=https://cooperatives.extension.org/distributing-returns/ |access-date=2023-07-22 |website=cooperatives.extension.org}}</ref>

==== Capital reinvestment ====
Usually, growing the business is not the main goal of a cooperative (the main goal is to redistribute profit among its members), but sometimes it is necessary to reinvest a part of the profits in the form of new capital, which will allow the cooperative to expand its operations and increase profit in the future. This is especially true during the initial steps of the cooperative, in which its operations have to grow to the point in which they have regained the initial capital investment. The capital reinvestments are decided collectively through the democratic mechanisms that a cooperative has.<ref name=":11" />

==== Patronage refund ====
Patronage refunds are the distribution of profits to the members of the cooperative, who have previously invested money in the form of capital by members and social loans.<ref name=":11" />

==== Dividends ====

{{see also|Dividend}}
The Rochdale principles state that cooperatives should have limited return on equity investments, so its usual for most of the cooperatives to not use equity investments, and, if they do, pay few dividends to the shareholders. The main reason for which they do that is that distributing profits as dividends reduces the potential amount of patronage refunds.<ref name=":11" />

==== Unallocated Retained Earnings, or "cushion fund" ====
Part of the benefits of a cooperative must be [[Savings account|saved]] as a safe fund, which will allow the cooperative to face unexpected situations and [[Crisis (economic)|crises]] if they appear.<ref name=":11" />

=== Redistribution of losses ===
In case that a cooperative experiences a loss, there are alternatives to handle them in the most efficient way possible.<ref name=":11" />

==== Make use of the "cushion funds" ====
If a cooperative has had profits at some point, it should have some savings, which it can use in times of economic losses. In this way, they can absorb the losses simply with the money they already had, not having to affect neither wages, employment, or stocks.<ref name=":11" />

==== Allocate the losses to the members ====
This is one of the most common ways to allocate the losses. Making this decision involves the workers deliberating through the stablished democratic mechanisms on how are the losses going to be distributed among membership.<ref name=":11" />

We have already seen that, in times of economical hardships, cooperatives are more willing to reduce their wages rather than reduce employment, whereas conventional firms would rather fire some people and keep the same wages for the rest of them.<ref name=":1"/>