Financing employee ownership transitions
Most conversions to worker-owned cooperatives are primarily debt-financed, in the form of loans to the employee-owned business, so it is important to ensure that the business can take on the debt servicing. Equity financing is increasingly being utilized through issuing non-voting preferred equity shares, including through Direct Public Offerings (DPOs). The employees’ buy-in amount becomes equity, but does not cover the complete sale price.
The following is an example of how a worker coop conversion could be financed for a business with a sale price of $2 million. For more examples, read our financing case studies.
| Example: Financing sources for a worker coop conversion | |||
| Source | Amount | Percent | |
| Senior Debt | $900,000 | 45% | |
| Senior Debt Line of Credit (for working capital) |
$200,000 | 10% | |
| Subordinated Debt Seller Financing |
$300,000 | 15% | |
| Subordinated Debt or Preferred Equity |
$500,000 | 25% | |
| Worker-Owners’ Equity (buy-in) | $100,000 | 5% | |
| Total | $2,000,000 | ||
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