What is Loanstock?
Loanstock is, as you may have guessed, money loaned to a Co-op by individuals (that's you folks) or other sources that the Co-op borrows over a fixed term. Investors can invest any amount over any fixed period. Typically loanstock is lent by its members and their friends and family.
What is it for?
When buying a house, a co-op needs loanstock as a deposit on a house, as well as for other initial costs such as surveys, furniture and fees. Loanstock is an important part of making a co-op work. It quite specifically isn't for daft things like parties, or buying a thousand shurikens, or anything like that. Housing co-ops also use loanstock for making big improvements, like solar water heating, that would make a house more environmentally sound.
Why use Loanstock?
Loanstock allows co-operatives to raise capital in order to carry out their activities without requiring members to invest a fortune in order to join. It is an important co-operative principle that personal wealth should not be a limiting factor to membership. Loanstock also allows investors to invest money in cooperative projects (to help the project succeed and/or in order to get a return on their investment) without having control of decision-making processes. This means that if you want to help a co-op set up you can, knowing that you'll get your money back at a set date and without having to live in one.
What loanstock are we seeking?
We're currently looking for loanstock to cover the cost of the building work we had done in early 2015 and to help us fund more improvements to the house. We are up for negotiation about the length of the investment term and the interest rate, up to 3%.
If you're interested in investing in a start-up co-op, then you can email firstname.lastname@example.org to ask for the contact details of Radical Routes co-ops who are currently in need of loanstock.
Legal bit: Loanstock is unsecured. However, should a co-op get into extremely terrible financial difficulties this would mean they would sell the house. In this rather unlikely situation excess funds from paying off the mortgage would be used to pay loanstock. Furthermore, the co-op would be obliged to pay loanstock to investors before recouping their own money. In practise, housing co-ops very rarely go bust.
So there you go, loanstock in a nutshell. You should not consider this page to be financial advice, it's just a basic explanation of how loanstock works in practice.
Mattie Rose and Sven