Hello SocialFinance.ca community. We’re writing to provide an introduction to the work of the Canadian Alternative Investing Cooperative (CAIC), a lending institution that has been in operation for nearly thirty years and currently has $7 million invested in community projects across Canada that benefit worker cooperatives, disadvantaged peoples and the environment.

CAIC invests in groups working for positive social change and community economic development that lack access to traditional financing. We are particularly interested in projects that promote alternative economic structures and act as a catalyst to structural change. When making an investment, CAIC takes into consideration both the social benefit of a project and its business soundness. A project will not be considered unless it meets our criteria for both attributes.

A recent loan to a worker cooperative organized to purchase an established home-care business illustrates our practice quite clearly. The loan was a case where, to use the 5 C’s of Credit parlance, Character, Capacity and Conditions presented a compelling argument for lending even though the applicant was light on Collateral and Capital. If the borrower had all 5 C’s in place then there would not be a need to seek social financing. These are the kinds of assessments that CAIC has to make all the time.

Here’s a summary of the investment opportunity, success indicators, and potential risks:

Investment Opportunity

• The worker cooperative was founded on the principal of member economic participation which means sharing the surplus (profits) between the members. In low wage sectors such as home-care, this model is an effective mechanism to ensure a fair wage and profit participation.

Success Indicators

• Participation by the principals – CAIC wants to be a partner in financing a social enterprise. The best way to achieve this is to have the borrower make an equity contribution to capitalizing the project. In this case, the worker-owners provided 20% of the business purchase price.

• Other social/commercial investors at the table – The borrower was able to get TenacityWorks (Canadian Worker Cooperative Federation fund) and a local credit union to provide 60% of the financing.

• Manageable debt load - The borrower demonstrated that the cash flows from the business could support the 80% loan to value ratio.

• Sound business model - The borrower was purchasing an existing business with proven profitability, and demonstrated a knowledge of the their own strengths and best opportunities for growth. In addition, a thorough detailed and conservative business plan had been developed.

• Strong committed key players with proven management/financial skills – The worker-owners were already in the key management roles and proving their capacity to successfully control and run an organization.

Risks

• Fixed assets, general security agreement, guarantees - The borrower had little in the way of assets that could be used as collateral to secure the loan. Their credit union (who also was provided a provincial guarantee) had a general security agreement over the assets. CAIC ended up accepting second position on the general security agreement as collateral for the loan.

CAIC has proven that a careful weighing of a borrower’s strengths and a realistic understanding of the risks involved can result in sound investment decisions. As a note of interest, the loan was paid off after 18 months a full 3 1/2 years ahead of schedule.

If you have any questions about this example (including definitions) or the work of CAIC in general, please use the comment form below, or contact us directly through our website. 

Photo Credit: http://www.flickr.com/photos/mikelo/144215094/

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