WALNUT STREET CO-OP - COMMUNITY REVOLVING LOAN FUND
WALNUT STREET CO-OP
COMMUNITY REVOLVING LOAN FUND
Community Revolving Loan Funds are an amazing tool. When we
converted our house to cooperative ownership, no bank was willing to
offer us a mortgage. Out of necessity we searched for alternatives, and
succeeded in purchasing our 9-bedroom home in Eugene, Oregon thanks to
approximately 20 friends who gave us private loans. This is a fantastic
model for alternative financing, a do-it-yourself empowerment that
shifts power away from conventional institutions, toward creating a
better world. This description is written to make the knowledge our
co-op gained from creating this fund available for other groups to
benefit.
We have a contract
with each lender that specifies how much money is being loaned, for how
long, at what interest rate, and any other terms. Our usual parameters
are a $5,000 minimum loan, 5 year minimum time, and no more than 6%
interest. We aim to be flexible, however, and every contract is a bit
different; for example, one loan requires us to maintain an advisory
team. Our lenders have been very generous with us: some lent at 0%
interest, others at 2-3%, and a few are using simple interest rather
than compound interest; also some were able to commit for 10-15 years.
We offer a way for people to invest in alignment with their values and
our lenders appreciate that.
Our loans are in the range of $5,000-20,000, except for one $120,000
loan from a person who met us when we had already raised over half the
money we needed and offered to cover the rest.
Most of our loans are amortized
at 30 years, which makes the payments affordable. If you are new
to this scene, amortization means that the payments are stretched out
over a really long time. That's how people of limited means are able to
buy something big like a house. Thirty years is a typical amortization
for a standard home mortgage from a bank. However, unlike a bank, most
individuals cannot predict the course of their lives 30 years ahead and
therefore are not prepared to commit their assets for that long. So
instead the way our loans work is that we make small payments during
the 5 years, acting as if it were a 30-year loan. But then at the end
of the 5 years, we have to pay the entire remaining balance due—this is
called a balloon payment.
That means that every 5 years our community will go through a
refinancing cycle. We'll be asking each lender whether they'd like to
turn the balance due on their loan back into the fund to lend to us
again, or whether they want the money back. We'll need to replace all
the loans that people want repaid, either with money from new lenders
or with increased loans from existing lenders. This is somewhat risky,
because if we were unable to find adequate new financing we'd have to
sell our property to repay the loans. However, that risk seems very
worth it to us, and after our experience so far we are reasonably
confident in our ability to do the refinancing—after all, we were able
to do it the first time around, and over time we are only going to
become a more attractive investment because the community will have
more equity in the property and a proven track record of repayment.
Our payments are quarterly rather than monthly, to reduce paperwork.
With the exception of our one large loan, the loans to our co-op are
unsecured. That means they are not officially attached to our property
in county records, in the event that the co-op dissolves and the house
is sold. This is partly because we wanted all of our lenders beyond the
one large loan to share an "equal second" position: meaning that if the
house was sold and the money wasn't enough to pay back all the loans,
everyone would get a proportion equal to the portion of their
investment, to be fair. But when loans are secured with the property,
they get priority in the sequence in which they were recorded with the
county, so that all of A's loan is paid off before B gets anything. In
order to give everyone an equal position we would have had to form a
whole separate legal entity, and even then the lawyer we talked to
wasn't sure it was doable. Also, having 20 separate loans attached to a
property is very complicated, especially when the lenders change over
the years. So instead, our loans are unsecured, and the contract with
each lender explains that they are in an equal second position with
other lenders.
Some of the loans have co-op members signed as personal guarantors.
That means that if the co-op fails to make payments, each of those
guarantors can be held responsible for the entire remaining balance of
the loan. But even with that, what it really comes down to is that this
whole community revolving loan fund deal is based on trust. Our lenders
understand that we are committed to being in integrity with them, and
that while we don't expect our co-op to fall apart, if it does we will
do our utmost to fulfill our financial obligations. If the co-op
dissolves, outside investors get paid in full before any co-op
residents get paid anything. Because our house appraised at nearly
$50,000 more than we paid for it and real estate values in our town are
rising, it is extremely unlikely that we'd be unable to repay all the
loans even if we did have to sell the property.
Our lenders come from a variety of sources. Some are active folks in
the communities movement who believe in creating more intentional
communities. Some are personal friends who felt moved to support a
particular individual here. Some are supporters of a wonderful
nonprofit that lives here, the Co-Intelligence Institute. We also received support from several organizations in the communities movement.
We attend to our relationships with our lenders; they are our
friends and not just a source of financing. We strive to be honest with
them, offering genuine appreciation and practical information without
distortion or descent into puffery. We try to visit them when we are in
their locale, send them a quarterly newsletter, explain to newer
housemates who they are as people, and so on. Our lenders are a
valuable part of our wider community and we are very grateful for their
continued support.
When we started this fund, we created a beautiful, well-written packet that
explained our project to prospective lenders. Our packet included the
following components:
- Vision of what we are doing and why it matters
- History of our project and community
- Business plan
- Biographies of the core group
- International co-op principles (also known as the Rochdale principles),
explanation of what a co-op is and of our type of community (limited equity
co-op) - Testimonial letter from a respected leader in the intentional
communities movement - Photos of the house (interior and exterior, with core group members in some of the pictures)
- Form for enrolling support (loans, donations, and more)
- SASE
If you are setting out to create a Community Revolving Loan Fund for your
intentional community or other project, my core advice is as follows:
- Believe in what you are doing and share your passion.
- Have everyone in your project make a list of everyone they know that has
$5,000 or more (or whatever your minimum investment is) that they might be
able to lend. Hopefully you will be surprised by how many names are on the
list. You won't end up asking everyone on that list, but it gets you
started seeing the possibilities. - Keep firmly in mind that you are offering lenders a service
and an opportunity. You are helping them to live out their values in
the world. At 3% interest you would be providing a higher profit than a
savings account and a more reliable profit than many other investments. - It's all based on trust. Some people lent to us based on one
conversation without ever seeing the packet, simply because they believed
in the person asking—at first i was shocked by this, but i came to
understand that trust is the central element in a lender’s decision. Be honest,
transparent, and above all always act with integrity.
Click here to see a sample contract.
Other possible financing sources for intentional community land acquisition
include:
- Institute for Community Economics (ICE): Their bureaucratic wheels turn slowly and they require huge amounts of documentation, but they can
lend over $100,000 if your project is structured as a land trust or limited equity cooperative. - PEACH (Protected Equity Accessible for Community Health): The member
communities of the Federation of Egalitarian Communities (FEC) operate their own health risk fund, a portion of which is available for investment
in intentional communities. This is a great cooperative
resource. Contact the PEACH administrator, Laird Schaub, for more
information at laird@ic.org or 660-883-5545. - Sunrise Credit Union is the only credit union in the U.S. based in an intentional community (Sunrise Ranch in Loveland, CO). Credit unions,
especially young ones, are closely monitored by federal agencies so they
are somewhat limited in their flexibility, however they offered us a
substantial loan if we proffered a qualified co-signer. - Permaculture Credit Union: This is an even newer credit union, and they are not set up to lend in very many states yet, but you can contact
them to find out if they are a resource in your area. - NASCO (North American Students of Cooperation) lends money to cooperatives that fit current lending parameters, through their CCDC development company.
- In theory the National Cooperative Bank
should be a source of financing for projects like this, but we were
told we were too small for them to even consider. However, if you are
converting an apartment building in New York to a co-op, they'd
probably be interested. - You can try asking other intentional communities and intentional
community organizations, particularly ones in your region.
Walnut St.’s Community Revolving Loan Fund was inspired and assisted by a
similar entity at Los Angeles Eco-Village. Their fund is outlined at the LAEV website.
