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Phone: (716) 884-0356 ext. 241

Email: info@cooperationbuffalo.org

Cooperation Buffalo is a project of The Working World, a 501(c)(3) community development financial institution

Some photo credits © Open Buffalo and The Working World

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Non-Extractive Loans

Cooperation Buffalo follows the Shared Principles of Seed Commons, and one of these shared principles is non-extraction. Non-extraction dictates the terms for all of our loans and investments. Non-extraction is defined simply as the returns to the lender not ever exceeding the wealth created by the borrower using the capital. This is often colloquially said as “a borrower will never be worse off than before working with us.”

Non-Extractive Terms

Non-extraction dictates the financing terms negotiated with enterprises who borrow from Cooperation Buffalo, and all of Seed Commons. Specifically, non-extraction manifests in the terms of principal repayment, interest rates, and security interests.

 

While Seed Commons makes a number of different types of capital placements (e.g. secured asset purchase loans, working capital loans, line of credit loans, preferred share equity investments, etc.), each deal reflects both non-extractive terms and the needs and capacities of the borrower. The three most common non-extractive terms are:

  • No repayments greater than profits: Borrowers are not required to make interest or principal repayments until they are able to cover operating costs, including market-rate salaries

  • No personal guarantees: Financing agreements never use assets for security unless the asset has been purchased with the financing agreement proceeds

  • No credit scores: Instead of credit scores, Seed Commons uses close relationships between local loan officers and potential loan recipients to establish a borrower’s reliability

For more information on the terms and approach of Seed Commons lending, visit their website.

Isn't All Finance Extractive?

At times, we are asked if interest is inherently extractive—or even if repayment of any kind is extractive. Non-extractive finance is defined as no more repayment going to the provider of the finance than the surplus that is created by the borrower’s use of the loan. If no surplus is created, nothing is returned to the lender. If wealth is created, it can be shared, and this, we believe, should be the basis of all finance relationships.

Imagine if "debt" was no longer something that those who don't have owe to those who have, but rather if "debt" was something owed to the commons by those who have surplus so that it can be borrowed by those who are in need. When successful cooperatives share their surplus for the productive use of other cooperatives, democratically created and controlled wealth can be used to generate more democratically created and controlled wealth. This is the conceptual framework for our non-extractive lending.