This week in Fast Company, CDFIs stood out as a path forward for a resurging trend in worker-owned small businesses, or cooperative businesses. "According to the Democracy at Work Institute (DAWI), a nonprofit that supports the development of worker co-ops, employee-owned small businesses see an average of 4% to 5% higher productivity levels and more stability and potential for growth. In contrast to traditional businesses, worker co-ops see much lower rates of employee turnover and business closure. They’re also known to boost both profits and worker wages." CDFIs are viewed as natural partners to coops, according to DAWI, because CDFIs "understand the risks and rewards of investing in co-op transitions, and can work with local businesses to come up with a capital stack that makes sense for them. For businesses looking to transition to co-ops, organizations like DAWI can act as connectors between owners and resources like loan funds."
One success story featured in the article is a daycare that made the shift, "A Child’s Place, for instance, took out a loan from The Working World, a New York City-based Community Development Financial Institution(CDFI) that manages a $5 million loan fund specifically for worker-owned businesses. That loan allowed the daycare’s staff members to collectively buy the business (the transition is still in progress). Taking loans from CDFIs, which provide smaller loans to local businesses that big banks won’t reach, is also an option, but Hoover has also seen some businesses launch Direct Public Offerings, which allow community members to buy shares in the business, and some co-ops manage conversions by having individual employees take out personal loans to collectively finance the transition. “One of the issues is that there hasn’t been a standard model or tool that people looking to convert can look to,” (DAWI director) Hoover says."
Read the full article here.