Dealing with start-up money

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Dealing with start-up money

From ICWiki


Banks do not loan money until a certain amount of work has been done on a development project. You will find that long before you can approach a bank for a loan, you will need to spend money developing your project. Lots of it. You will be able to apply the money spent by members towards future down payments on mortgages so keep track of every dime.

Funds for start up costs can be generated in several ways. One is to charge a monthly assessment. Someone who is interested but not committed may not mind putting up ten dollars a month for awhile. In almost every start-up group, the really committed people will put in large amounts of unsecured cash to cover the expenses. This may draw out to several thousands of dollars, especially when you start hiring architects, attorneys, and such. Once you get into it this far, you have enough capital commitment from members so that they have enormous interest in seeing it through. The people with little investment will be the ones that are most likely to leave the group. Another way to generate money is to have a committed person or persons loan money to the group with payment based on future assessments of future members. Be sure to document any such agreements well. Misunderstandings about loans can cause problems later. Some forms of legal agreements allow for silent partners, which can contribute cash into the project, but are not actually members. This is handy to collect money from relatives of members for example.

When dealing with money be sure you understand the laws in your state relating to securities.

If you are creating a community as one large capital project that will be funded by future mortgages, such as a cohousing project, the development group will have to come up with enough money to:

  • Incorporate as a group and recruit a core group of members
  • Group costs for things like process training, parties, etc.
  • Escrow payment to secure the site
  • Do feasibility studies on the site
  • Any costs related to zoning changes
  • Architectural fees
  • Legal fees
  • Permit fees

Once you have an approved project, with engineered drawings more or less ready to go, and have a builder lined up, then the banks will talk about giving you a project loan.