Q: Who is eligible to make a member loan to the co-op?
A: Only member-owners of South Philly Food Co-op who are legal residents of the Commonwealth of Pennsylvania can make a member loan.
Q: Isn’t my membership enough? Why is a member loan needed?
A: The co-op needs start-up funds. Funds to start the store come from membership equity, member loans, outside loans and grants. Member loan programs are long-standing methods used by co-ops to raise money and show community support for their stores. They demonstrate the existence of a loyal customer base and reduce debt service, which makes the business stronger.
Q: What if I don’t have cash immediately available?
A: Some members have made loans by moving money within their savings portfolios rather than taking it out of current spending.
Q: Can I make a loan now and still make another one later?
A: Yes. For some households, temporary conditions limit their current lending ability. Arrangements can be made for a second loan in the future.
Q: What are some legal assurances?
A: All of the member-owner note program legal documents have been created by an experienced securities attorney. As in any other investment, there are risks involved with making a member loan. Specific risk statements related to making a loan to the South Philly Food Co-op are outlined in our member loan packet, which you can request by emailing [email protected].
Q: Why is it necessary to have the terms of the loan be so far out?
A: The loans are scheduled to come due over several years, as this spreads out the impact to the Co-op’s outgoing cash flow so we ensure stability over the long term. We will offer terms of different lengths but we will need most loans to be at least 7 years long.
Q: Can I really choose my interest rate?
A: Yes, you select the rate of interest that is repaid to you. To give an example, our 2019 loans offered 0%, 2%, or 4% interest on your investment. This offering will be similar but rates may vary slightly. Stay tuned.
Q: Why can’t the Co-op just borrow all the funds from banks?
A: Securing financing internally from member loans will enable the Co-op to lessen the overall cost of the project substantially, as commercial loans involve higher interest rates than member loans and require payments to begin immediately. By leveraging member-owner loans, we will significantly reduce debt service in the critical first five years of business. Plus, member-owner loans strengthen our position when negotiating external financing, as they demonstrate to commercial lenders the strong community support we can count on.