Co-ops have written to the US House Small Business Committee to request a hearing on a recent report exploring co-operative lending.
Published by the Small Business Administration (SBA), the report looks at the personal guarantee requirement, which is part of the loan application process for co-ops and other businesses.
The support system and loan programmes run by the SBA are an important provision in helping small businesses get off the ground. But although co-ops have been eligible to apply for these since 2017, the requirements for obtaining them are difficult for the sector to meet.
This is because SBA wants a personal guarantee on loans, in case the business is unable to fulfil the obligations of the loan. Sole business owners can use their homes to satisfy this requirement – but a similar approach is difficult for a co-op, which has multiple owners.
The 2018 Main Street Employee Ownership Act ordered SBA to look for alternatives to this personal guarantee requirement so co-ops could qualify for loans.
The law also directs SBA to work with the country’s network of 900 Small Business Development Centers (SBDCs) to provide transition-related technical training, executive education, and one-on-one consulting. The legislation was particularly aimed at the baby boomer generation, with large numbers of business owners nearing retirement with no exit plan.
Related: USA passes new law to aid business transition to worker-ownership
But National Co-operative Business Association (NCBA), along with 90 other partner organisations says the SBA has not done enough.
They say the SBA’s report, Cooperative Lending – Personal Guarantee Requirement, fails to suggest alternatives to the personal guarantee requirement – despite several alternatives proposed by the co-op sector.
NCBA also warns that SBA’s recommendations for the sale and conversion of existing business to an employee-owned co-operative would create more barriers for the sector. SBA suggests that the business owner selling up should provide a full, unlimited personal guarantee for the life of the loan.
“This is an entirely unreasonable request for a business owner entering retirement,” said NCBA in its letter. “Imagine a small business owner selling their business, but having to sign a personal guarantee for the buyer’s own loan.”
NCBA also wants the hearing to look at the SBA’s implementation of the Main Street Employee Ownership Act, and is calling for equal access to SBA financing.
“For decades, the co-operative industry has asked SBA to level the playing field for co-operative businesses… We ask that your committee assert itself and make this a priority to resolve,” reads the letter.
Co-ops wishing to support the cause can sign the web version of the letter by emailing Kate LaTour at klatour@ncba.coop.
