How Financing a Food Co-op’s Expansion Project Works

When Menomonie Market Food Co-op announced the expansion of our Menomonie location in 2013, we had about 1,100 owners. Now just eight years later, over 4,500 families own a share of our thriving business, and many of you may not remember or have any knowledge of how we built the new store. Since our businesses are collectively owned by community members and no one person has the authority to sign a bank guarantee, financing expansions at cooperatives can often be misunderstood, even by financial institutions. Here’s an overview of how it works.

To finance the construction of a building, businesses need capital, and securing that capital can be complex. Co-ops usually follow a similar strategy to do it—selling preferred shares to owners and drawing on bank loans, grants, savings, and other income for the rest. Ours, for example, will be financed in the following ways:

Preferred Shares (~25%): An exciting perk of ownership is having the first opportunity to invest in expansion projects. Also called “Class C Shares,” preferred shares are dividend-bearing investments offered to owners. These are mutually beneficial because owners are able to receive a higher interest rate on their investments and the co-op is able to lower its financing costs. For our project, we are offering 4,000 preferred shares at $500 each to owners who are in good standing and live in Wisconsin. If we sell them all, we will raise $2,000,000 in ownership investments. More information about investing can be found by visiting our website at MMFC.COOP/EXPANSION.

Savings (5-10%): Over the last few years, our co-op has been setting aside funds designated for expansion.

Grant Income & Credits (5-25%): Our staff has already applied for two grants to help fund the project, and we intend to apply for a New Markets Tax Credit just as we did for our Menomonie store.

Bank Loans (40-65%): We will be applying for a loan from a local financial institution this fall that we will pay back over the next several years. The loan amount will depend on how much is invested by owners and received through grants and credits.

Other methods of financing expansion projects include real estate sales, landlord contributions, extended vendor credits, free-fill products from vendors, non-owner investments, governmental support, gap financing, and other funds from community sources. We will make use of any of these that fit.

Taking on a project of this size can be daunting for co-ops, but we are fortunate to have experienced leadership who not only know how to secure financing after doing so for our Menomonie store, but they also know how to do it in a way that positions both stores for success in the future. By ensuring we can afford our new building, we will be able to offer more jobs and support more local suppliers than ever before.

This article was originally published in the May/June 2022 issue of our bi-monthly newsletter, The Morsel. If you’d like to read more stories like this one and stay up to date on the latest co-op news and events, pick up a print copy in-store on your next grocery run or find more news on our website here.

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