credit cooperative business plan

The co-operative model business plan

This appendix provides a model business plan outline. Make the plan your own. Your cooperative is unique in many ways so you don’t want the business plan to look just like everyone else’s; you want it to be an expression of your co-operative’s unique structure, products, plans, principles, values, environment and people.

The business plan itself does not need to have all the sections listed in the Table of Contents below, but you should put some effort into every section listed in it to have the co-operative well prepared before it is open for business.

Following the title page, the business plan should, at a minimum, have an executive summary, co-operative overview, market analysis, and plans for marketing, operations, production and finances.

Executive summary 

Write the executive summary after you have finished the rest of the business plan. It’s an overview of the business plan, highlighting the main points and putting them into context. Consider organising the executive summary in the same order as the business plan.

The executive summary is placed at the start of the business plan to entice the reader to read the entire business plan, making it one of the most important sections.

It is not new information; it is a summary of information which is discussed in more depth throughout the business plan.

The executive summary should be able to stand on its own, and succinctly explain in one or two pages the distinctive characteristics of the co-operative and its products and why it will be successful.

It may include:

• the reason(s) the business plan has been written
• an overview of the co-operative and its market opportunities
• a description of the products or services
• a summary of its expected financial performance.

Complete it with conclusions and recommendations and a summary of how you’ve arrived at your conclusions.

Another way of looking at what the executive summary says is: What is the problem? What is the solution? What will be the outcomes?

Introduction 

This section provides background information about the co-operative and could very briefly describe the co-operative type, when it was formed, who formed it and why, its location, mission, vision, values and principles, objectives and strategy to achieve them, industry, products and services, target market, development stage and achievements to date, summary of members and management, and capital raised to date.

The mission statement should say what you do, how you do it, and why you do it.

The vision statement should be somewhat loftier – describing what you want the co-operative to be in the long-term; it should be a “planned wish”.

The objectives state what the co-operative wants to achieve, usually within a certain timeframe, and are guided by the mission and vision. Objectives are business, social and financial objectives. They should be measurable, and there should be both short-term and long-term goals.

Values are statements about why the co-operative is in business, and who it serves. Values consider the social and environmental factors which the co-operative will be mindful of in achieving its objectives.

The introduction may also explain why the business plan is being written, and for whom. If it is written to support an application for finance include the name of the bank or other financier, the amount of funding sought, the term of the loan, the use of the loan, how it will be repaid, and the security the co-operative will provide.

Make it brief; one to two pages should do.

The co-operative 

Co-operative structure

Outline the co-operative’s structure. Remember that many people do not understand the democratic and social principles of co-operatives, so briefly explain how it works, its rules, and how it will support your business and social objectives.

Describe the location, size and capacity of premises and any warehouse facilities. If the premises are leased state the cost of rent and length of the lease; if they have been purchased, state the value of the property. Explain how long the co-operative has been at the premises, if there is a strategic advantage in its location and, if any renovations or extensions are required, what they will cost.

Registrations and licences

List the registrations and licences that the co-operative has. If others are needed, explain what they are and when they will obtained.

Describe the insurance that the co-operative has and will be getting. It could include cover for premises, contents, workers’ compensation, liability, professional indemnity, business interruption, and motor vehicles.

Plant and equipment

Itemise the plant and equipment that the co-operative has and needs. If the business plan supports an application for funds, explain the importance of acquiring the equipment and provide details of quotes for their supply and installation. Consider listing the equipment in two tables: the first table showing the equipment already acquired and its cost and written down value; the second table listing equipment to be acquired, its value and when it is planned to be purchased or leased.

Products and services

In simple terms, describe the features of the products and services the co-operative currently provides, and those to be developed in the future. You may like to include photographs. Explain how they are different to others available in the marketplace, and why customers will buy products or services from your co-operative instead of from a competitor.

Describe the key components or raw materials used in making products, where they come from, and whether there are any restrictions on supply or agreements with suppliers. If there are likely to be price fluctuations, you might explain how they will be dealt with. You may wish to explain if there is a backup supplier available.

If it’s a new product under development, explain the progress made in research, product design and development, what tests are required and have been done, and any regulations applicable or licences or approvals that are needed. List any intellectual property protection sought to avoid duplication by competitors. Provide a timetable.

If there has been product testing in the marketplace, explain the results. Describe plans to upgrade the product or service or increase the range on offer. Describe quality assurance controls to be instigated.

If the co-operative provides a service, explain what it is, why it is needed, and how it is or will be delivered, monitored and improved.

If you have a product inventory, list the items in a table, or include an inventory list in the appendices.

You may wish to include here how you are going to minimise shrinkage of inventory due to theft, damage, loss or accounting errors.

Current performance

If the co-operative has already been trading, include a short summary of the co-operative’s turnover, gross profit and net profit for the current year and last year. More detailed information will be put into the financial section of the business plan. If the co-operative hasn’t begun trading yet, use the projected financial figures.

Members and directors

If the business plan is being written to assist you to ask for finance, use this section to show that the people who own and run the co-operative are competent and qualified. Give an overview of the number of members, active membership provisions, who the directors are, and the offices they hold.

Include a summary of their skills, qualifications, experience and industry knowledge. Consider including résumés in the appendices.

Key personnel

If you plan to engage employees or already have staff, list the positions, names (if already employed) and skills of employees, and whether their employment is full-time, part-time or casual. Résumés for managerial positions could be included in the appendices. If your cooperative is fairly large, draw an organisational chart which shows who reports to whom, and the positions they hold, and include it in the appendices.

Co-operative advisors

Include the business names and addresses of professional advisers who have helped to establish and grow the co-operative. These might be bankers, solicitors, financial advisors or planners, insurance agents, accountants, chambers of commerce, another co-operative or a co-operative peak body. This section shows that your co-operative is supported by a professional  team.

Risk management

List the risks, in order of likelihood that they could occur, that the co-operative faces. State the impact the risk could have, how likely it is to occur, and what action you will take to prevent or minimise the risk to the co-operative. Key risks may include property damage, theft, electrical outages, pollution, legal liability, injury, loss of data, shifts in the economy, loss of customers, loss of suppliers, security, theft of copyright or inability to raise capital.

Operational plan

A new co-operative should explain how the co-operative will be run: the daily routines, people and functions that will make the co-operative run smoothly and successfully. Keep in mind the democratic nature of your co-operative and its social purpose; make it the focus of your actions. Directors and managers should use the operational plan to lead and inspire members and staff.

Break your operational plan down into actionable steps so it will easier to implement. Identify what each task is, who will do it, when it will be done by, and how you’ll know it has been done. Attention to detail will make the co-operative’s operations run more efficiently.

The operational plan might include ways in which you intend to devise and implement operating, accounting and management systems required for the first year of activities. Plan for staff selection and recruitment, duties and salary policies, performance monitoring, training, health and safety policies, technologies, record-keeping, banking, taxation, accounts payable and receivable, meeting legal obligations, finding suitable premises and office equipment, use of professionals, service to customers, orders and delivery management, promoting innovation, further research and development, meeting schedules, developing a co-operative culture, appropriate management style, working with members and directors, conflict resolution, compliance with regulations and inspections, and alliances with other co-operatives.

Existing co-operatives will need to consider many of the same issues, but have the advantage of having procedures already in place. They should develop an operational plan to improve the day-to-day operations of the co-operative, reduce overheads, plan for growth, alleviate risk and increase efficiency.

Production plan 

The production plan will describe how the co-operative will manufacture, procure products or provide services, and provide the final product or service to customers.

It will describe:

• the complexity of the manufacturing
• the equipment and tools required
• the cost of raw materials and labour per unit
• the cost to produce a product or deliver a service
• the number of hours of production daily or weekly
• the number of units to be produced or the number of services to be delivered
• average selling price
• managing inventory levels
• forecast number of days stock is to be held
• cost control
• manufacturing staff requirements
• source and delivery partners and contract terms
• the time taken to produce the required stock levels
• environmental plans
• disposal of waste.

Quality assurance is crucial, whether the co-operative is providing a product or service. The co-operative relies on the loyalty of members and/or customers for repeat orders, so it needs to provide value for money and consistently high quality products or services. A strong quality assurance system will consider employee motivation and skills, standards and testing, feedback from customers, and minimising waste and product returns.

The market 

This is an important section of the business plan, as it demonstrates that you have done your homework and it is likely that your product or service will be accepted by customers. There’s not much point in having a great product if you don’t have a market.

Much research is involved: you’ll need to understand who your customers will be, what will make them spend their money on your products or services, who your competitors are, what environmental factors could affect you, and how you are going to sell and promote your product or service. There are many places to go for information – try the Australian Bureau of Statistics, government departments, councils, Regional Development Australia, trade and professional associations, chambers of commerce and consumer organisations.

Find which ANZSIC code is used for your business. ANZSIC is used by the government to produce and analyse industry statistics. ANZSIC codes for all industries are found at www.abs.gov.au .

An industry sector contains a range of other businesses which supply similar services or products. Provide an overview of the industry sector the co-operative is in, such as the size, growth, key clients and markets, the largest providers, and demand and supply trends that affect the industry now, or may in the future. Describe any other relevant factors that drive the industry, such as innovation, regulations, seasons, financial and technical issues, distribution and supply and whether the industry is new or mature.

Provide a summary of where the co-operative is positioned within that industry, and its vulnerability to competition and trends.

The environment

Describe important trends and issues that could affect your co-operative’s operations and identify how you plan to deal with them.

Issues may include changes of government, international relations and trade, employment, environment and competition regulations, taxation legislation, new policies and laws, consumer protection, and industrial relations.

Issues may include interest rates, government spending, consumer confidence, unemployment, exchange rates, inflation, national and state economic growth, global economic outlook, materials availability, import substitution and skills shortages.

Issues may include demographics, education, standards of living, multiculturalism, housing availability, fashion, health awareness and income distribution.

Environmental

Issues may include environmental awareness, waste, pollution, energy, climate change and water.

Technological

Issues may include efficiencies, obsolescence, NBN, costs, savings, research, innovation and social networks.

Market research

It’s crucial to understand the marketplace and your customers, whether they are likely to buy the co-operative’s products or services, and possible ways to motivate them. There are two types of research you can do that will help with this: primary research, done by observing competitors, meeting with potential customers, or by survey; and secondary research, which is gathered from existing data.

What you will research will depend on what your products and services are, who your customers are, where your market is, and the level of competition in the marketplace.

Your market research might include:

• customer profiles and characteristics – age groups, gender, occupation, income, location, buying habits
• customer preferences, needs and expectations
• target markets
• the customer fit, and demand for products and services
• your fit, barriers to entry and influence on the market
• product specifications, acceptance and new opportunities
• product pricing and sales forecasts
• market size (units and value)
• market growth and trends
• market segmentation and definition
• competitor analysis
• advertising and promotional opportunities
• seasonal variations
• methods of distribution.

Describe the research you have done, and what it has revealed.

Competitors

Do not underestimate your competition. You need to understand and describe who your competitors are and the effects they will have on the co-operative’s business. Provide details of their market share, resources, products and target market, strategies, strengths and weaknesses.

Explain where the co-operative fits within the industry, what level of market share you expect, any barriers to entry and how you will address them.

Also describe how the competitors are likely to react at your co-operative’s entry into the market and the co-operative’s response strategy.

Competitive advantage

Describe what is different about your products or services compared to those of competitors. Explain why customers are likely to buy enough of your products or services to make the co-operative sustainable.

• Do you have a different target market?
• Is there an unmet need in the target market you can fulfil?
• Do you offer something different or new?
• Does your product or service have superior quality or features?
• Will the co-operative advantage work for you?
• If your product or service is unique, describe difficulties competitors will have in copying it, giving a lead time from product launch to when a competitor can duplicate your product.

List the co-operative’s internal strengths and weaknesses.

Then list the external factors that could affect the co-operative’s activities – the opportunities (e.g. market trends) and threats (e.g. competitors, economic uncertainty).

Describe how you can capitalise on the strengths and opportunities, and reduce the effect of weaknesses and threats.

Target markets

Describe the target markets for your product or service. Who are your customers? If you already know who they are, list the major clients if they agree to this information being made available to external parties. If you don’t have major clients, or there are potentially many of them, you should define the markets you will be selling to.

How have you identified your target markets? What are the characteristics of the target markets? Are your customers a certain age or gender, do they live in a particular location, have a certain type of job, ethnicity or income level? Are they members of the co-operative? What are their needs and preferences? How big is your target market? How often will they buy from you? Why and how will they buy your product or service? Are they end-users?

Consider if there are different segments to your target market. For example, would both students and professionals buy your products? Each segment may have different needs, and may be willing to pay different prices. If you understand the needs of each segment, you can adapt your marketing mix to provide what each segment wants.

Product pricing and terms

In determining the prices of your products or services, consider the costs to produce, or to deliver services, your customers’ sensitivity to the price and to price changes, and what the price reveals about the product’s value or quality. Will you offer quantity discounts, or discounts for repeat sales? Will co-operative members receive a discount or rebate?

Describe the expected payment terms for customers, e.g. direct customers pay cash while distributors and members pay within 30 days from invoice date.

Product sales, margins and distribution

If your co-operative is new, estimate the number of products or services to be sold in the first year, and consider using a table to show your estimates. If the co-operative is already established, use both past and projected performance levels. You may wish to break the table down into weeks or months. The table can form the basis of sales volume records and pricing over time, and identify changes to help you to plan future sales targets and purchases of raw materials.

Describe how your products will be distributed – whether through direct sales, online marketing, direct mail, agents, wholesalers, representatives, retailers or consignments. Describe commissions or other fees involved.

Estimate the cost of other expenses such as shipping, warranties, contracts and liabilities.

Strategic alliances

List strategic partnerships the co-operative has, or plans to form, with other co-operatives or businesses.

These may be to work together in major ventures, or on market access, supplies or other resources. Provide information about the arrangements.

List key suppliers, and describe their history and reliability, location, what and how much they can supply, credit policy and delivery details, and the cost and availability of materials.

Marketing plan 

Explain your marketing objectives – what you aim to achieve and what you will do to achieve them. Ensure they can be measured and evaluated. An example might be “to obtain 20% of market share by the end of the first year”, or “to ensure 50% of our target market recognise our brand, and 10% buy our products”. Then determine what marketing activities will help you achieve your aim.

Determine your marketing strategies and activities for each month of the first year to create awareness and sales. This is your marketing mix, and relates to product, place, price, promotion, people and process.

Product strategy : consider the products’ qualities, consistency, features, adaptability, packaging and design, how the customers will perceive the products’ features, and how you will market them.

Place strategy : consider distribution channels, location of retail outlets, the geographic area your products will be available in.

Price strategy : consider the selling price to various customers and markets, including discounts for quantity and early payment.

Promotion strategy : consider what advertising, selling, sales promotion, trade shows, website, media and public relations activities you will undertake to differentiate your product and make consumers aware of your product or service.

People strategy : consider who will sell the product and delivery it. People may include staff, strategic partners and agents.

Process strategy : this is the strategy where you plan, target, cost, develop, implement, document and review the systems to attain the other aspects of the marketing plan. You’ll plan to have the right product, in the right place, at the right price, in the right quantity, at the right time for the right customers.

The finances 

Often the last part in the business plan, the finance section is important as it demonstrates the likely financial viability of the co-operative, and is vital information for anyone considering investing in the co-operative.

It shows what financial resources are needed to set up and operate the co-operative, forecasts of the co-operative’s performance based on expected sales levels, and it details the timing and the amount of investment needed from external sources.

Commencement capital – new co-operatives

List the amount of capital that has been raised and will be raised from members, and funding confirmed from other sources.

List the costs to start the co-operative (below) in a table, and show the month when the costs are expected to be paid.

• Set up the co-operative: these costs might include accounting and legal fees, registration of the co-operative and domain name, website, insurances and licences.
• Set up the premises: these costs might include a bond and advance rent, fit-out, electricity connection, telecommunications connections and stationery.
• Purchase plant and equipment: these costs might include machinery, tools, office furniture, vehicles, telecommunications, computers and software.
• Start of operations: these costs might include advertising, raw materials and supplies, wages, interest – and working capital to tide the co-operative over until it trades sustainably.

Subtract the set-up costs from the confirmed capital raised; the balance is the amount of borrowings you will require.

Financial objectives

List the co-operative’s financial objectives and how long you expect to take to achieve them. These may be profit targets, investment levels, returns to members and debt repayment.

Assumptions

Explain the key assumptions made in developing your financial forecasts:

• sales and purchases forecasts
• the time it will take to collect from debtors
• the time it will take to pay creditors
• interest rates
• time between manufacture and sale
• timing of member contributions
• timing of external capital injections
• increasing membership.

If the co-operative has already been trading, describe its financial history, including equity, debt and profit levels.

Include at least four key financial ratios:

• Debt equity ratio = total liabilities/members’ equity
• Return on investment = % of interest over total loans received, and % dividend over members’ capital injected
• Break-even point = the sales volume level where revenues and expenses are equal and provide no profit or loss. This will change each year with changes in costs, income, and interest levels.
• Working capital = current assets – current liabilities

Monthly cash flow forecasts

The cash flow forecast demonstrates how and when cash comes into and goes out of the co-operative. Hopefully it also shows that income from sales will pay for bank loan repayments and other expenses. It will show you when you need an injection of cash to cover monthly bills, and when you need to conserve cash to pay for upcoming bills.

For the first year of trading, present monthly cash flow forecasts. After the first year, show yearly forecasts for at least two years.

Monthly income and expenditure forecasts

Also called profit and loss forecasts, and forecasts of financial performance, income and expenditure forecasts show the co-operative’s projected income less expenditure, resulting in a profit (or loss) over a specific period of time. For the first year of trading, provide monthly or quarterly forecasts, and annually for the following two years.

Just a few quick tips for the financially challenged – income is usually from sales, and expenditure is usually the costs to run the co-operative and interest payments. Loans (liabilities), purchased equipment and inventory (assets), capital injections from members (equity) are all items for the balance sheet.

When you receive an invoice it is an expense, even if you haven’t paid it yet; so it is shown in the month the expense was incurred. Show all items as GST exclusive (i.e. without GST).

Balance sheet forecasts

The balance sheet, also known as the statement of financial position, shows the co-operative’s net worth at a particular point in time – usually the last day of the financial year. Assets are usually objects and cash the business owns, liabilities are usually debts owed, and equity is the capital contribution and accrued profits. Assets minus liabilities equals equity.

Provide balance sheet forecasts for three years.

Financial plan

Describe your plans for the co-operative’s financial viability. What is the total investment required for start-up? What are your short and medium-term investment plans? Where will funds come from? Have they been confirmed? How much comes from each source, and what conditions do funds come under (e.g. interest rates, repayment terms)? What security is offered?

When is the co-operative expected to make a profit? What level of sales is required to make a profit? When will members see a return? How much are profits expected to grow each year? How will costs be kept down? If non-distributing, will you retain surpluses, and where do you plan to donate excess surpluses?

Do you have an exit strategy?

A note on financial management

This note on financial management is not meant for inclusion in the business plan, but nevertheless is very important. (A summary of the financial management systems used could be included in the financial plan.)

Members (and investors) need to know how the co-operative is performing and need to receive regular accurate reports. Systems must correctly identify, measure and communicate financial information.

You need to understand and abide by accounting principles.

Complete, accurate, and up-to-date financial records must be kept. These may be handwritten, or on computer spreadsheets, but we recommend that unless the co-operative is very small, you should use financial software. Such software doesn’t replace an accountant, but usually knows what to debit and credit, and has a useful help function.

Develop strong systems for handling cash. Provide numbered and dated receipts for money received. Provide numbered and dated invoices (tax invoices if the co-operative is GST registered) for purchases and to others who owe you money.

Every month, reconcile your expenses paid and income received with the bank statement. Produce a balance sheet and profit and loss statement to help you keep an eye on finances and to allow you to plan and control the co-operative. Watch your creditor and debtor levels; ensure you collect money owing and pay expenses when due.

The strategic plan

A strategic plan is usually a long-term plan for the next three to five years. It explains the goals and objectives to be reached, and the path to achieve them. It’s a bit like a GPS for a very long journey, if you zoom out and ignore the minor roads.

Focus on a small number of key priorities. Too many priorities will mean you lose focus on the major objectives.

Make the priorities easy to translate into action plans, and have clear timelines to achieve outcomes.

Information that might distract from the business plan’s flow should be included as appendices. Provide a summary of the information within the business plan, and more detail in the appendices. It’s also a good place to include information that is not part of the business plan. Start a new page for each appendix.

Appendices might include the following:

• Disclosure statement.
• Co-operative rules.
• Past three years’ financial statements.
• Directors’ and key staff members’ résumés.
• Pictures of products, premises or location.
• Forecasts of purchases and payments to creditors.
• Forecasts of sales and debtor collections.
• Letters of support.
• Promotional materials.

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How to Get a Business Cooperative Started

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A business cooperative is an enticing alternative to the standard capitalism model, offering a democratic management style, lower risk of debt, and other social and economic benefits. Cooperatives also give small-business owners more control over their organization and come with certain tax advantages.

In this article, we’ll define a cooperative business, offer examples of worker cooperatives, and discuss how to get a business cooperative started.

• What is a business cooperative?

Business cooperative examples

• Steps to starting a business cooperative

The takeaway

Business cooperative faq.

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What is a cooperative business?

A business cooperative (co-op), is an organization or enterprise owned by its members. While a traditional business serves the interests of investors, founders, or board members, a co-op services the interest of its customers or workers. Most co-ops are established to fulfill an economic need, such as providing products, services, or bargaining power that is otherwise unavailable to a certain group of people.

Business cooperatives come in many forms, such as housing co-ops, food co-ops, credit unions, and agricultural co-ops. However, many large corporations are also cooperatives, including Ace Hardware, REI, and Land O’Lakes dairy.

Here are some other well-known cooperatives in the US.

• Navy Federal Credit Union: The largest credit union in the US, serving military servicemen and government employees
• Alliant Credit Union: A credit union based in Chicago, Illinois, originally founded by employees of United Airlines
• Dairy Farmers of America: A marketing cooperative owned and operated by dairy farmers across the US
• Associated Wholesale Grocers: The nation’s largest food co-op, which supplies independent grocery stores across the country
• People’s Food Co-op: A Portland, Oregon-based food co-op with a focus on sustainability
• Berkeley Student Cooperative: A housing co-op for students of UC Berkeley

How to start a business cooperative

Since co-op founders usually organize cooperatives based on a specific need or problem, the first step in starting one is to identify that need. Once this is done, the group should take the following actions to officially establish the co-op:

1. Establish a steering committee.

A steering committee is a group of people that represents the members of the organization. This committee should create a timeline for coordinating the logistics of the co-op. They should also establish the co-op’s values and mission, as well as gauge the overall level of interest in the co-op.

2. Conduct a feasibility study.

Once the steering committee is established, the group should conduct a study to consider all possible challenges and obstacles the co-op might face. This study should look closely at opportunities for financing, operating costs, and other factors that influence the market.

3. Create articles of incorporation.

Every cooperative must have articles of incorporation and bylaws that govern the organization. These bylaws should be made by a legal counsel and can be changed and enhanced over time.

4. Draft a business plan.

Like a traditional business, a co-op should have a detailed business plan that guides the company as it grows. The plan should include a market analysis, a marketing plan, product research, and a description of the co-ops goals and objectives.

5. Get financing.

Most co-ops need cash flow for day-to-day operations. This cash often comes from member investments, but some co-ops use a business loan to finance their organization in the early stages.

6. Begin operations

At this point, the co-op can hire a manager and employees, secure a facility, and open its doors. It’s important for members to remain committed to and aligned with the goals of the organization to ensure long-term success.

A worker cooperative offers a number of benefits to small-business owners, including a democratic management style, less debt risk, and member dividends. To set up a business cooperative, a setting committee must conduct a feasibility study, establish articles of incorporation, create a business plan, and secure financing.

Would you like to learn more about starting a business cooperative? Check out Business.org for How to Start a Small Business: Must-Have Checklist to Spark Success .

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Some cooperatives are not designed to make a profit and instead operate at cost. If a cooperative does make a profit, the members who purchase goods or services generate that money. Those profits are typically returned to the members as a refund or put back into the organization.

Safety stock is a term used to describe the excess inventory business owners choose to keep in hand in the event of an increase in demand or supplier delay.

Here are the steps to starting a worker cooperative:

• Establish a steering committee.
• Conduct a feasibility study.
• Create articles of incorporation.
• Draft a business plan.
• Get financing.
• Begin operations.

A cooperative (co-op) is a type of business organization that exists to benefit its members rather than outside investors. The co-op is owned and run by the members, and any profits are divided among those members. Most cooperatives are organized to reduce costs, fulfill an unmet need, improve the quality of a product or service, or improve bargaining power.

What are some cooperative business examples?

There are many types of cooperative business organizations, including mutual insurance groups, credit unions, electrical power co-ops, housing co-ops, and retail co-ops, such as Ace Hardware or REI.

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

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Co-op 101: how to start a co-op.

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Are you wondering how to start a cooperative or if a co-op is right for your business? There are a lot of steps to starting a cooperative and factors to consider throughout the process. We’re here to help you get started. In this guide to starting a cooperative, we’ll provide an overview of how to organize a co-op and what you can expect. If you determine the co-op model is the right fit, you’ll be ready to commit to a rewarding and empowering business venture.

What Is a Cooperative?

A co-op, or cooperative , is a user-controlled, user-owned enterprise. It is a type of corporation . People voluntarily form a cooperative together to meet common needs and benefit from the products or services of the cooperative they create. For example, a grocery co-op is owned by the people who shop there.

Cooperatives are open to anyone who is willing to accept the terms of membership. They are fully controlled by their members, and members equally contribute to the capital. The profits of the co-op are distributed among the members or re-invested in the company.

Members have an equal say in the business of the cooperative. Unlike other types of corporations, where shareholders have more say if they own a higher percentage of the company, all co-op members follow the principle of “one member, one vote” which carries equal weight. Equality is one of the core values and founding principles of a co-op. A co-op will usually have a board of directors to run the co-op, set up policies and make sure the co-op stays on track. The members of the board are members of the cooperative and are usually elected by vote. The board of directors makes decisions based on the votes of regular members.

A cooperative can be created in any industry and can be any size. Cooperatives are commonly found in agriculture, grocery, healthcare, housing, financial services and utilities. One in three Americans is a member of a cooperative.

Should Your Business Be a Co-Op?

If you’re interested in starting a new business or changing the structure of your current business, there’s a lot to consider if you’re thinking about setting up a co-op. As with any business, you want to make sure the cooperative model suits your vision best before investing your time and money. Here are some reasons a cooperative might be right for you:

• Stability: According to the W.E. Upjohn Institute for Employment Research, employee-owned businesses are less likely to reduce employment during a recession . This helps companies like cooperatives make it through economic challenges. Employee-owners help increase profits as well. A Rutgers University study found that businesses that switch to employee ownership see profits increase as much as 14 percent .
• Democratic control: If you want your business to be run by its members rather than controlled by investors, a co-op might be right for you. With a co-op, no one has a greater say than the other person.
• Lower startup costs: A cooperative may be an appealing option for those who require lower startup costs. With a cooperative business, every member contributes to the capital and provides support.
• Benefits to the community: Co-ops are an excellent option for businesses that want to serve their community. For example, co-ops may obtain products or services that would usually be unavailable in the community or would otherwise be unaffordable. Co-ops also contribute to the economy of the local community. Overall, the focus of a cooperative is to benefit its members, instead of delivering profit to investors.
• Worker engagement: Employees are more likely to be engaged with a company they own and benefit from. They are also more likely to be committed to the quality of service and products they provide because they will want to see their company succeed.
• Tax advantages: Like other businesses, cooperatives face tax rules, but they can also reduce their tax burden in ways other corporations can’t. For example, a co-op can issue patronage dividends which can be deducted from the cooperative’s taxable income.

Despite the advantages, the cooperative model may not be the right fit for all businesses. Here are reasons why you may wish to reconsider starting a cooperative:

• Financing: Generally, cooperatives don’t attract large investors who want greater control of the company with more shares. It can also be tough for cooperatives to get loans from banks. However, that doesn’t mean financial assistance is unavailable for cooperatives. There are various funding opportunities to help co-ops get started, such as the Rural Cooperative Development Grant (RCDG) program  which supplies funding for development through cooperative development organizations around the country. A cooperative may also attract funding if a funder wants to promote the development of the community.
• Longer decision-making process: Cooperatives require time to make decisions because all members are part of the decision-making process. If you anticipate the need to make decisions fast, a cooperative may not be the best option for your business.
• Reliance on members’ involvement: Co-ops depend on their members’ interest levels and involvement. If members lose interest in the co-op and stop investing energy in the business, it can be hard to continue to provide benefits for members.
• Profits are disbursed among members: A cooperative spreads its wealth among its members. Therefore, the founding members of a cooperative business do not benefit more than others only because they started the cooperative. This may make a co-op an unattractive option for some business owners.

Steps to Forming a Cooperative

Like any business, starting a cooperative requires dedication and business know-how. If you are new to the business world, there are professionals out there to assist you throughout the process. Also, a cooperative is about its members, so you won’t be alone if you find people who want to join your mission and be part of your success.

Follow this step-by-step co-op startup guide to get an idea of what it takes to organize a co-op, and where to start.

1. Develop the Idea

A cooperative is a business that needs to make a profit to continue operating. You first need to know what you are going to sell or what services you plan to provide. Consider who will buy your product and if they will be willing to purchase your product or services at the prices you offer.

One way to develop a co-op idea is to identify something your community needs and how your business can fill that need. Are there certain products or services unavailable? Are some products of poor quality or overpriced? Research your community to determine if your idea will work. Plan to spend 3 to 6 months exploring your business idea.

2. Gather Members

You need to gather individuals who are genuinely interested in your business idea and who may want to become members of your cooperative. Hold a meeting with potential members and develop your mission and core values. Clearly define your business idea and describe how it’ll benefit the lives of the co-op members. Also during the meeting, choose the name of the co-op and its head office location.

3. Conduct a Feasibility Study

A feasibility study will help you determine if your idea is doable and will work well in your community. After you consider the results of the study, you can decide whether or not to continue with your co-op idea. If you decide to move forward, you can use the information from the study as the basis of your business plan. Here are components to include in your feasibility study:

• Preliminary analysis: First, consider if your product will serve the needs of your community. Also, ask if you can successfully compete with other businesses offering the same products or services. Lastly, identify any obstacles that may stand in your way of success. For example, can you acquire the capital needed for your business, or is it unaffordable? The preliminary analysis will illuminate the potential of your idea.
• Market survey: Conduct a market survey or hire an outside company to conduct the survey. Conducting a market survey is a crucial part of your feasibility study. You’ll review factors such as demographics and purchasing power in your community, and you’ll use the information to analyze competitors and potential customers.

You and other members might consider hiring a consultant to assist you with the feasibility analysis. It may be well worth the money to ensure you complete a thorough and accurate study because it can save you a lot of money and effort in the long run.

4. Incorporate and Create Bylaws

If you conclude that your idea is financially feasible, you can take the next steps with confidence. You’ll next want to elect a board of directors, incorporate your business and adopt bylaws.

You must incorporate your business if you want to be recognized as a corporation legally. A cooperative is a type of corporation. A corporation is simply the term used to describe a legal entity owned by a group of shareholders . There are many advantages to incorporating, such as:

• Protecting your assets against liabilities
• Allowing you to transfer ownership easily
• Receiving tax advantages

Not all cooperatives are incorporated. However, if you decide to incorporate, you’ll need to take the following steps:

• File articles of incorporation with your state: Articles of incorporation are documents your file with your state to legally record the formation of your cooperative. Articles of incorporation include information such as your co-op’s name and address, as well as the names and addresses of the board of directors. The exact document requirements vary by state.
• Write bylaws: Bylaws are the rules of your co-op. The board of directors establishes bylaws during the process of setting up a new company. Creating bylaws will be the step you take after your co-op is legally formed. You do not generally need to file bylaws with your state unless you are applying for non-profit status. Your bylaws should include information such as the name and address of the business, board member duties, and meeting and record-keeping procedures. Be sure to consult your state’s statutes to help you create bylaws. You might ask a lawyer to ensure your bylaws comply with the laws in your state.

5. Create a Business Plan

After you incorporate and create bylaws, it’s time to develop a detailed business plan. You can think of your business plan as a map that will show members and the board of directors which direction to take to reach common goals. Use the information you gathered from your feasibility study to help you write your business plan.

Overall, your business plan should include everything you and members need to know to run and grow the co-op. There is no right or wrong way to create a business plan as long as it meets your needs. Traditional business plans include the following:

• An executive summary which includes your mission statement and basic company information
• A description of the problems your co-op solves and the people it serves
• A market analysis describing trends in your industry, the outlook, what competitors are doing and how you’ll do it better
• Information about organization and management, such as who runs the co-op and how it’s structured
• A description of the products you sell or services you provide and how it benefits members
• How much funding you need and what you will use it for

6. Obtain Capital

The board of directors will be responsible for acquiring the capital needed to launch the co-op. You might raise money from members, local residents and lenders. You may also be eligible for government startup grants. Make sure you include how much financing you need and how you plan to obtain it in your business plan.

Once you have an adequate amount of capital, you’ll be ready to launch. Hire staff and teach them their duties and responsibilities as cooperative members. Open business doors and provide products and services to meet the needs of your members, and don’t forget to market your co-op. Lastly, remember to celebrate your journey and accomplishments.

Keys to Successful Cooperative Development

Various key elements will determine the success of your cooperative and its development. According to a cooperative development guide put together by the Cooperative Development Institute , the following elements are signs your co-op is off to a good start:

• Founding members are committed and motivated: Your co-op’s members will determine the success of the business. Without your members, the co-op can’t exist. The development of your co-op is more likely to be successful if the members are committed, motivated by your vision, involved in the process from the beginning and will benefit the most from the co-op.
• The project has strong leaders: Every project needs strong leadership to guide members and keep motivation high. If your project has leaders who are strongly interested in the success of the cooperative and are willing to contribute their skills, vision, and experience, you’ll be heading in the right direction.
• The vision is clear: You have to have a clear vision, so members know what’s expected of them, how to resolve issues, and most importantly, how to achieve goals.
• The business is well-planned: Planning is essential to the success of any business. Make sure you properly planned all the details of your cooperative and how it will operate. This should include market research.
• It’s financially feasible: You will need adequate capital to succeed. Founding members should be financially committed to the co-op. If you have the financial resources you need from the start, you’ll be able to grow.

Other tips for co-op success include:

• Stay focused
• Keep members up to date and involved
• Set realistic goals
• Use market research, rather than opinions, to guide decisions
• Identify and reduce risks
• Maintain open communication
• Invest in staff training and education
• Raise adequate funding

Join NCBA CLUSA Today

We hope we helped you learn the basics of starting a co-op. Starting any business is a complicated process that demands careful planning and consideration. It also requires the help of other individuals who are as dedicated to your mission as you are. At NCBA CLUSA, we are passionate about promoting the cooperative business model and Building an Inclusive Economy.

If you have more questions, we’re here to help. Browse our site to learn more about cooperatives and how we advocate for co-ops around the world or reach out to us so we can assist you. If you’re ready to join our mission to advance, promote and defend cooperative businesses, become a member today .

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How to start a co-operative: a step-by-step guide.

Starting a co-op? This article provides a step by step guide on how to start a co-operative. There’s a lot to do, and a lot to learn — but we have tons of supports, resources, and tools are available. This article provides a map to many of them.

A short note before we get started

Starting a business is exciting and rewarding, but it can also be frustrating.

At Co-operatives First, our job is to de-mystify the process of starting a co-operative business . That’s why we built this site. The Co-op Creator provides a variety of guides, tips, templates, and links. We’ve also developed an online course full of helpful videos to help you learn about this process — you can take that for free here . 

For the DIYers out there, this is ideal. But sometimes folks need more hands-on support. If that’s you, our knowledgeable staff is a phone call or email away .

Okay, let’s get started.

Step 1: Decide if a co-op is the right choice for your business

What do you want to do.

Agree on the purpose of the business. Maybe your community doesn’t have enough daycare options. Maybe you’re a professional with your own firm who wants to share the cost of office space and administration. Perhaps you’re a producer who needs help packaging, marketing, and distributing your vegetables. Whatever the case, everyone needs to agree to and buy into the purpose of the co-op. A good place to start is by asking the question: what problem are you trying to solve and how does working as a group help solve that problem? This resource can help you focus ideas and engage potential members and markets in the process .

Who will do it?

A co-op is a business run by a group of people who share its benefits. You might already have a group that wants to work together. That’s great! You might also have an idea and need to get more people on board. To get the word out, you could organize a meeting to discuss how a co-op could work and see who wants to get involved. 

Is a co-op the best fit?

If you’re thinking about starting a co-op, consider these two questions: What is the purpose of the business and who should benefit from it? If the answer is ‘provide a service for those who benefit from it,’ then a co-op is probably a good choice. The model works best when member interests are aligned and working as a group brings value beyond what can be achieved alone.

To learn more, here’s how co-ops compare to other business models . Or try our questionnaire .

Step 2: Get organized

Decided a co-op is the way to go? Time to organize your co-op’s structure, plan of action, and finances. 

Create a steering committee

Co-ops need people to start and support them. So, if you haven’t already, find like-minded people to join you. But make sure these people have a personal interest in starting the co-op.

Also, keep in mind BC, Alberta, and Manitoba require three people to incorporate a co-op — in Saskatchewan you need six.

Develop an action plan

Sit down with your committee. Come up with a plan for starting your co-op. Decide what needs to get done, and who is going to do each task. Write it down and hold people accountable.

Do a PESTLE analysis

To assess the external factors that could impact your new business, try completing a PESTLE analysis . Also consider doing a business model canvas to better understand how the business will work.

Create a preliminary budget

How much money do you need to start the co-op? Where will it come from? Get a clear financial picture of your start-up before getting too far into it.

Create a governance structure

Who will make the decisions in your co-op? Figure out who’s in charge, and how the decision-making process will work in your business. 

Step 3: Incorporate your co-op

Now you’re ready to incorporate your co-op, which means you’ll file documents with the government that legally create your business. You probably do this with your provincial government — but if your co-op will operate in more than one province, you can incorporate with the federal government.

We’ve created work plans that you can follow to incorporate your co-op in:

• Saskatchewan
• Canada (federal incorporation)

Incorporating your business will include the following tasks: 

Select and reserve a name 

The next step in starting your co-op is to pick a name — here are some tips on choosing a name for your co-op . You can find more specific information about registering a name in your province’s work plan (above). Or try our guide to naming your co-op .

Complete and submit the Articles of Incorporation

Your Articles of Incorporation (also known as “Memorandum of Association” if you’re in BC) are the documents you submit to the government to start your co-op. Once you’ve filed these and they’ve been accepted, your co-op will be a legal entity . This means it has rights, and can do things like open a bank account, take out loans, etc.

You’ll find more detailed info about incorporation both in the above work plans, and here:

We know you’re busy. We can incorporate your co-op for you. Curious why you should incorporate? Check out this video .

Write your bylaws

Bylaws (known as “Rules of Association” if you’re in BC) are the rules you write for your co-op. The government requires that you include certain things in bylaws, while other rules are up to you.  Requirements change depending on whether you’re in BC , Alberta , Saskatchewan , Manitoba , or are incorporating federally .

Step 4: Build your membership

Attract and admit new members.

Once you’ve started a co-op, it needs members! You’ll need to identify who your members should be , get the word out to them about joining your co-op, and create a process for them to join . 

Keep track of your members

To better manage members’ data, co-operatives keep membership registries . These registries are just places where you store information. For co-ops with more complex interactions with members, you might want an accounting software to track member accounts, issue dividends, and generate reports. For smaller and/or newer co-ops, you could just use an Excel spreadsheet.

Hold an Annual General Meeting

Every year, your co-op will have to hold an AGM . At this first one, you’ll elect your first board of directors . Often, the steering committee that’s been working to start the co-op becomes the first board, but you may also need to recruit members . 

Step 5: Formalize and expand your plans

Write a business plan.

A business plan is a great tool not only to guide you as you build the business, but to attract investors, show lenders that your business idea is sound enough to deserve a loan, or get new members to join. You should do this as a group.

We’ve created this handy Business Plan Creator to lead you through the process. You can also apply to Co-operatives First to have a professional consultant create a plan for you. 

Finance your business

Figure out how you’re going to get the money to start the co-op: from loans? Members? Selling shares? Fundraising? Usually it’s a combination of these. Write a financial plan , a budget , and think about how to finance the business going forward .  

Step 6: Govern your co-op

Train your board.

It’s important for all board members to understand their role and what’s expected of them. Co-operatives First can provide training to get your board started on the right foot. 

Develop policy

New boards have a lot to do to guide the co-op. Here are some just a few things a new board will do in the first year:

• Create a strategic plan
• Write a Human Resources policy
• Write a Conflict of Interest policy  
• Recruit members
• Evaluate itself

 If starting a co-op is your goal, Co-operatives First can be there every step of the way. Contact us to get started.

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• Business Loans

How To Write A Successful Business Plan For A Loan

Updated: Aug 18, 2022, 12:46pm

A business plan is a document that lays out a company’s strategy and, in some cases, how a business owner plans to use loan funds, investments and capital. It demonstrates that a business is already producing income and has a plan to continue doing so moving forward.

A successful business plan is well-written, realistic, concise and, most importantly, convinces financial institutions that approving your business for a loan is a smart choice.

Here’s what you need to know about each section of a business plan and how to write a plan that will earn a lender’s stamp of approval.

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What Does a Successful Business Plan Include?

A successful business plan outlines your entire business and effectively explains how it makes money and why it’s likely to succeed. This is especially important if you’re trying to get a small business loan .

The content of a business plan should vary from company to company, but there are a few common sections that will help lenders better understand your business and help you qualify for financing.

Executive Summary

An executive summary concisely summarizes your business plan—usually on one page. The goals of this section are to inform the reader about the business as a whole, summarize what is contained in the rest of the document and capture their interest. That said, the best use of this section may depend on the age of your business.

• Startups. Startup owners typically use the executive summary to discuss the business opportunity, their target market and their planned strategy for building the business. The section also may touch on relevant market competition. Startup companies in particular should use the executive summary to build a lender’s confidence in the business.
• Established businesses. Companies that have been in business for several years usually orient their executive summaries around past achievements and growth plans. In this case, the section may begin with the company’s mission statement and provide information about business operations and financials before outlining future goals.

Industry Analysis

The industry analysis section of a business plan defines the business’ industry and mentions current trends—with a focus on risks and opportunities. The section also informs the reader about how the industry works and where the business fits in the industry as a whole.

This section should start by defining the industry, as well as what products and services it provides, and what consumer demand it fulfills. Next, identify the most important influences in the industry. In the case of a bank, this may include applicable government regulations; for a clothing boutique, it may be consumer trends and budget.

The industry analysis should also define the company’s intended niche in the industry.

Market Analysis

The market analysis zooms into the specific market niche mentioned in the previous section. Market analysis aims to detail the segment of the broader market the business is intended to fit within. For example, a fashion brand or boutique may target high-income consumers.

Use this section to explain how the segment differs from the wider industry. In the fashion boutique example, a market analysis may reveal that high-income consumers in the fashion industry pay substantially more for brands that are considered exclusive.

Also, describe the size of your business’ niche and how it fits into the wider industry. This should include mention of how many existing businesses operate in this niche and how they target consumers.

Competitor Analysis

A competitor analysis explains what competitors in your niche do and informs the reader of the current market environment. Start with an overall assessment of your competitors. Then, discuss the most relevant competitors for your niche. When conducting a competitor analysis, ask yourself the following questions:

• Where do your ideal customers currently shop?
• How do these competitors differentiate themselves?
• How are competitor products and services priced?
• Why do customers choose those products or service providers?

Using the example above, many clothing boutiques compete by providing higher quality products or a unique, luxury shopping experience. If your store has a single location, your competitor might be another clothing store with a similar price-point or signature style.

Target Market Segmentation

In the target market segmentation, you’ll identify your business’ target market and describe how you will meet its needs. This section aims to instill confidence in the lender by providing a clear and objective strategy for building revenue.

Begin the section by informing how your products or services meet your shoppers’ needs. Next, explain how consumers can access your products or services—including a brief outline of your marketing strategy and how it is tailored to your target clients. Contrast this to your competitors’ strategy as defined in the previous section. After reading this portion of the business plan, the lender should know exactly how your business intends to compete.

Services or Products Offered

Use this section of the plan to explain what your business offers its ideal customers and to contrast your product and service offering to that of your competitors. Start by defining your product and service offering, including pricing. Also, inform the reader what equipment or materials you need to provide your products and services. For instance, a fashion apparel brand needs access to textile manufacturers.

Marketing Plan and Sales Strategy

Now that the lender understands what you offer, explain how you plan to market it in greater detail. This section outlines how you’ll attract and convince consumers to buy from you. The goal is to provide a flexible and realistic marketing and sales plan that convinces the reader you know how to attract consumers.

The sales strategy section of your business plan also should include the company’s revenue goals and explain how your marketing and sales department will achieve them. Provide in-depth details on the marketing and sales challenges you’ll face and how to overcome them. While this information is always relevant, it’s particularly important to lenders reviewing your loan application as they will want to know how you plan to make money.

Operations Plan

The operations plan details your company’s day-to-day operations. This detail-oriented section should comprehensively explain how your business will operate, beginning with a list of your company’s daily activities.

As a high-end clothing boutique, your daily operations may include:

• A manager reconciling sales receipts and inventory numbers
• Stylists researching future trends and sourcing new inventory
• A marketing team building an online and social media presence

Note: This section is more about your business’s daily processes rather than its organizational structure—which is the next section.

Management Team

Use the management section of your business plan to tell the lender who does what in the company and how they’re compensated. Help the lender better understand the people behind the company by including biographical and background information on the company’s owners and key executives.

The best way to present this information is often with an organizational flowchart. You can also include other information about the company in this section, like your mission statement and values.

Financial Plan

Your financial plan tells a prospective lender two things: how much you plan to spend each year and how much you’ll earn in revenue. This section is the most important for most businesses, as it can make or break a lender’s confidence and willingness to extend credit.

Always include the following documents in the financial section of your business plan:

• Cash flow statements
• Income statements
• Capital expenditure budgets
• Balance sheets

Most lenders ask established businesses for at least three years of financial data, and some may ask for five. Preferably, include as much financial data as possible. If you’re a startup, include estimated costs and projected revenue, and supplement your data with industry averages or financial data from competitors.

Exit Strategy

Your business plan should always include an exit strategy in case things go wrong or you simply decide to close up shop. This may include everything from taking on new partners to selling your business or even declaring bankruptcy. Having an exit strategy is another way to show lenders that you have thought about the risks involved with your business and are prepared for them.

The appendix of a business plan normally contains financial information and other documents the reader may need to gain a comprehensive understanding of the business. Established businesses typically include financial statements and projections, at a minimum. In contrast, a startup could include the research they conducted to make the business plan.

Also consider including relevant resumes, marketing materials, letters of recommendation or references. For ease, your appendix should have a table of contents directing lenders to the most important documents.

What Lenders Look for In a Business Plan

There are five things that lenders typically look at when making business lending decisions: character, capacity, capital, conditions and collateral. By understanding these key considerations, you can draft a business plan that speaks to a lender’s interests and concerns.

A business’ character includes subjective, intangible qualities like whether its owners are perceived as honest, competent or determined. Stated another way, lenders want to know that you are honest and have integrity. These qualities can be critical for evaluating candidates because most lenders don’t want to lend to someone they don’t feel they can trust.

To evaluate the character of you and your business, lenders look at your personal credit history as well as your business’ financial history. Use your business plan to bolster your character by including ample financial records, letters of recommendation and other relevant documents.

Lenders want to know that you have the ability to repay the loan. They evaluate this by looking at your business’ financial history to see how much revenue you have generated in the past and how much profit you have made.

Lenders might also judge your capacity based on your business’ financial projections as well as your personal credit history and household income. Where relevant, lenders look at your management team to see if they have the experience needed to grow your business or keep it on a path toward success.

When reviewing your loan application, lenders read your business plan to see how much money you need to borrow and how you will repay the loan. They also look at your financial statements to see how much cash you have on hand and how much debt you are carrying.

Likewise, lenders often prefer business owners who have made larger personal financial investments in their enterprises. A personal financial investment reveals your commitment to the business and demonstrates you have the resources to pay off a large loan.

Ultimately, a lender’s biggest concern is whether your business can realistically succeed. So, they judge your company’s chances of success using your business plan as well as current market conditions. A good business plan can improve your lender’s confidence by convincing the lender that market conditions and your business strategy increase your odds of success.

In some cases, lenders want to know that you have something of value that they can use to secure the loan. This can be property, equipment, inventory or even receivables. If you don’t have any collateral, lenders may still approve a loan if you have a good credit history and a solid business plan.

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Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their finances. She has also been featured by Investopedia, Los Angeles Times, Money.com and other financial publications.

Cooperative Business Planning

This resource includes several templates for cooperative business plans from actual housing cooperatives in North America. Other references provided are a blueprint for the development process, of which the business plan is a part, and a cooperative business plan presentation given at the 2009 NASCO Institute.

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What Is a Financial Cooperative?

Financial Cooperative Explained in Less Than 4 Minutes

Definition and Examples of a Financial Cooperative

• How a Financial Cooperative Works

Notable Happenings

Financial cooperative vs. financial institution.

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A financial cooperative (co-op) is a member-owned, nonprofit financial institution that operates under a members-first philosophy to serve a population’s banking needs. A financial co-op may be able to offer lower fees and better rates because they are not seeking profits to return to investors. 

Cooperatives are important organizations for the world’s economy. Here’s what they are, how they work, and what contributions they can make to their local communities. 

The defining characteristic of a financial cooperative (co-op) is its structure, which is typically member-owned and governed rather than investor-owned—a unique characteristic for a financial institution. The most common types of financial cooperatives are credit unions and cooperative banks . They’re often locally-owned and operate as nonprofits. They also tout their values and customer-centric business model. Financial co-ops return revenue to members in the form of lower rates, fewer fees, and higher dividends.

Cooperatives do not take the same risks as shareholder -owner banks because they are not after large profits. Thus, while many large banks suffered incredible losses during the financial crisis of 2008 and beyond, co-ops were able to come out stable and strong. In fact, co-ops kept growing steadily during that time period. 

• Alternate name : Cooperative financial institutions, credit union
• Acronym : CFI

A credit union is an example of a financial cooperative. Credit unions were originally established to serve people with the lowest incomes in North America and developing countries. The purpose of these financial cooperatives is greater financial inclusion . 

Credit unions are open to the public; anyone who meets the requirements can become a member. 

How a Financial Cooperative Works 

It’s fairly simple to become a member of a financial cooperative. Once a new customer opens a savings account, they become a member of the co-op. 

It’s common for a credit union to require the following to open a savings account and become a member:

• New member fee
• Minimum savings deposit
• Social security number (or ITIN or EIN)
• Address (some co-ops require customers to live in the area they service)
• Government-issued photo identification

As a member, the new customer is able to apply for loans and other banking products at the co-op rates. 

Because financial cooperatives are owned by members instead of outside investors, they don’t have the same pressure to deliver profits. When a member applies for a loan , for example, they may be able to secure an interest rate lower than what a bank with investors would offer. 

The United Nations (UN) named 2012 as the “International Year of Cooperatives. Financial cooperatives were recognized as a major contributor to socio-economic development , especially in regard to poverty reduction , employment generation , and social integration. 

The UN passed a resolution to encourage all member states to raise awareness about the impact financial cooperatives have on social and economic development . It also sought to promote the formation and growth of cooperatives as cooperatives create a more inclusive financial environment, as well as encouraged governments to create policies, laws, and practices that were conducive to the formation of cooperatives.

Cooperatives have also been recognized for their resilience in the face of the 2008 global financial crisis . Cooperatives are able to continue extending credit to members, particularly to the small- and medium-sized enterprises during difficult times. 

Although a financial cooperative is considered a financial institution , it distinguishes itself from most other financial institutions in the way it is structured and the way it makes money. While financial cooperatives are owned by members who have one vote each, financial institutions are owned by investors.

This important distinction changes the way each organization operates. Most traditional financial institutions are publicly traded entities and must satisfy investor demands to earn profit. FInancial cooperatives do not have investors to satisfy and instead work to meet members’ needs instead. There are some other key differences between the two. 

Key Takeaways

• Financial cooperatives are nonprofit financial institutions that offer banking services to members.
• Financial cooperatives may offer lower rates on loans and higher dividends on investments. 
• Financial cooperatives are often local organizations and were originally established to serve low-income populations.
• Becoming a member of a financial cooperative usually requires opening a savings account with a small amount of money deposited. 
• Credit unions are the most common type of financial cooperative. 

National Cooperative Business Association.” Financial Services Co-Ops .” Accessed Jan 20, 2022. 

International Labour Organization. “ What Financial Cooperatives Can Teach the Big Banks .” Accessed Jan. 20, 2022.

Cooperative Federal. “ How To Join a Cooperative Federal .” Accessed Jan. 20, 2022.

United Nations. “ 2012: International Year of Cooperatives .” Accessed Jan. 20, 2022.

Centre for Socio-Economic Development. “ Cooperatives for Inclusive Growth ,” Page 3. Accessed Jan. 20, 2022.

Financial Stability Institute. “ Regulation and Supervision of Financial Cooperatives ,” Page 1. Accessed Jan. 20, 2022.

8+ SAMPLE Co-operative Business Plan in PDF

Co-operative business plan, 8+ sample co-operative business plan,  a co-operative business, benefits of a co-operative, types of co-operatives, how to start a co-operative business plan, how do co-operatives generate revenue, who benefits from a co-operative’s profits, what is the maximum number of owners that a co-operative can have.

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MSU Extension Product Center

Starting a cooperative and developing a business plan: phase 2.

Questions about this information? Contact us . June 04, 2015

Updated from an original article written by Mark Thomas, Michigan State University Extension.

Having enough interest in starting a cooperative is just the first step, developing a viable business plan, when implemented, that meets the identified needs is the second.

In my first article on starting a cooperative I noted that the purpose of starting a cooperative was recognition of the need to solve problems or meet needs of the marketplace with goods or services. A steering committee should be formed to determine if there is data to support the feasibility of the cooperative. This committee should present its findings to potential members and let them make the decision to move forward with the development of a cooperative. The development of a business plan is then critical, as it will map out the necessary steps for a successful enterprise.

The feasibility study will lay the foundation for the business plan. It contains market information about the potential members’ usage and how a cooperative would differentiate itself from existing competition (if any). Additionally, financial viability and management expertise will be spelled out, as well as facilities needed and potential locations. Having this study prepared in an expert manner will insure the business plan is on solid footing s moving forward.

The business plan is a road map to launching a cooperative and will allow the Board of Directors to know where they want to be and how to get there. Having a professional who is familiar with cooperatives to assist with the preparation of the business plan is a good idea and can avoid and voids problems in the future. It should include the preparation of three years’ projections (pro-forma) of cash flow, operating statements and beginning and year-end balance sheets. These will be used to paint the picture of the capital needs and potential sources of funds to meet the asset needed. Additionally financial planning should include funding the operating until profitable.

The steering committee should study the legal aspects of cooperatives and have an understanding of the duties necessary. At this point employment of legal counsel to develop the articles of incorporation, specific to the State should be undertaken. They can also assist with bylaw development and they should be in sync with the purpose and scope of how the cooperative will operate.

The steering committee should now be ready to hold a fourth member exploratory meeting. It is essential to have a large turnout of the identified potential members. Direct contact, newspaper articles, web postings and any other method of “spreading the word” about the meeting should not be overlooked. The meeting is conducted to present the business plan to potential members. The business plan will tell the story of the potential cooperative. Why the steering committee supports the development and how it will benefit the community of interest at large should be spelled out. Financial details regarding membership investment requirements should leave no doubt in the minds of the potential members that their assets will be at risk.

With full disclosure of the information regarding the risks and possible returns of the cooperative, the potential members conduct a vote to continue or not. If the vote is in the affirmative, the cooperative can hold its first meeting at which two items of business need to be conducted:

• Approve the bylaws
• Elect a Board of Directors

Michigan State University Extension educators working with the MSU Product Center’s Michigan Cooperative Development Center can provide assistance with helping guide groups of potential cooperatives through this process. 

This article was published by Michigan State University Extension . For more information, visit https://extension.msu.edu . To have a digest of information delivered straight to your email inbox, visit https://extension.msu.edu/newsletters . To contact an expert in your area, visit https://extension.msu.edu/experts , or call 888-MSUE4MI (888-678-3464).

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Credit Co-op Patrons Could Save on Borrowing with Proposed 163(j) Guidance

Comment letters submitted by advocacy groups to the Department of the Treasury (Treasury) and the IRS on its 2024–2025 Priority Guidance Plan could provide an opportunity for taxpayers who are patrons of credit cooperatives to reduce borrowing costs if addressed.

The comment letters request guidance be issued to provide a patron may net a patronage dividend received with the associated business interest expense paid to a credit cooperative for purposes of Internal Revenue Code (IRC) Section 163(j). The tax law authorities cited for this requested guidance are twofold:

• Based on the conduit treatment for regulated investment companies (RICs) as provided in the Section 163(j) regulations, noting a similar judicial conduit treatment for patronage dividends of cooperatives.
• Under the established legislative and judicial theory of a patronage dividend functioning as a price adjustment or rebate on the business interest expense paid.

The National Council of Farmer Cooperatives (NCFC) and National Society of Accountants for Cooperatives (NSAC) both submitted comment letters on May 30, 2024, requesting the Treasury and IRS issue guidance with respect to the treatment of patronage dividends received by a patron with business interest expense subject to Section 163(j) generated by debt financing issued by a credit cooperative.

If addressed, the guidance from the Treasury and IRS could potentially benefit many farmers, fishers, and rural agribusinesses who rely on credit cooperatives for financing, and in many instances, these credit cooperatives are the only available source of financing.

Who Is Affected by the Priority Guidance Plan?

A taxpayer patron subject to Section 163(j), which may be an individual or entity taxed as a partnership, S Corporation, C Corporation, or cooperative, becomes a patron of a credit cooperative for purposes of executing a loan agreement for interest-bearing financing issued by the credit cooperative.

For example, the credit cooperative may be a member of the Farm Credit System, such as CoBank or an Agricultural Credit Association, regulated by the Federal Farm Credit Administration.

Background on IRS Notice

IRS Notice 2024-28 invited the public to submit recommendations by May 31, 2024, for items to be included in the 2024–2025 Priority Guidance Plan.

The Treasury Department's Office of Tax Policy and the IRS use the Priority Guidance Plan each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance.

The 2024-2025 Priority Guidance Plan will identify guidance projects that the Treasury and IRS intend to actively work on as priorities during the period from July 1, 2024, through June 30, 2025.

Why the Need for the Requested Guidance?

A taxpayer patron’s gross interest expense paid to the credit cooperative is business interest expense subject to Section 163(j). The patron’s patronage dividend received from the cooperative is included in gross income under Section 1385(a)(1).

Under the final Section 163(j) regulations, the patron does not have a specific provision describing a procedure to net the patronage dividend with the business interest expense, even though under the facts of the cooperative lending arrangement the patronage dividend represents a rebate from the cooperative on the business interest expense paid by the patron.

Many farmers, fishermen, and rural agribusinesses operate at low profit margins and require recurring sources of borrowing to finance their operations, including planting, harvesting, and purchasing of farm and production equipment. These taxpayers chiefly rely on credit cooperatives for financing, and in many instances, these credit cooperatives are the only available source of financing.

In most instances, these loans are made on a patronage basis, meaning the borrower is a patron of the cooperative with an expectation that the patron will share in the cooperative’s annual patronage dividend distribution. The patronage dividend functions as an effective rebate on the business interest expense paid, thus reducing the patron’s cost of borrowing.

Next Steps with Summary Guidance Requested

Based on the conduit treatment for RICs provided in the Section 163(j) regulations and a similar legislative and judicial history of conduit treatment for patronage dividends of cooperatives, it’s appropriate for a patron of a credit cooperative to receive similar conduit treatment either as a Section 163(j) adjustment to treat the patronage dividend as business interest income, or under the historical price adjustment theory of patronage dividends, functioning as a rebate on the business interest expense paid, netting the patronage dividend with the patron’s business interest expense for purposes of Section 163(j).

This treatment is also analogous to Private Letter Ruling 201524017 from March 16, 2015, allowing netting of patronage dividends with interest expense for purposes of the REIT gross income qualification test under Sections 856(c)(2) and (c)(3).

The NCFC and NSAC comment letters request guidance to be issued by Treasury or IRS in the form of a notice, revenue ruling or amendment to the Section 163(j) regulations providing that a patron may net a patronage dividend received from a credit cooperative with the associated business interest expense paid to the credit cooperative for purposes of Section 163(j).

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BREAKING: Willie Mays, the San Francisco Giant whose power and speed made him one of baseball's greatest players, dies at 93 

IRS plans to raise $50 billion over 10 years, closing loophole exploited by the wealthy

The IRS estimates it will raise more than $50 billion over the next decade by closing a loophole often exploited by wealthy filers seeking to avoid paying taxes.

The loophole allows such taxpayers, as well as businesses, to move assets between entities in a way that authorities say has no economic purpose. Deputy Treasury Secretary Wally Adeyemo called the practice “really just a shell game" in a statement.

The use of such pass-through businesses has increased 70% from 2010 to 2019 and helped allow the top 1% avoid paying $160 billion in taxes, Treasury said. 

“Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit,” Treasury Secretary Janet Yellen said in a statement.

The plan builds on ongoing IRS efforts to  increase audits  of the wealthiest taxpayers, large corporations and complex partnerships.

“These tax shelters allow wealthy taxpayers to avoid paying what they owe,” IRS Commissioner Danny Werfel told reporters on a media call Friday.  

President  Joe Biden ’s top economic adviser last week unveiled the administration's  “key principles” for tax policy , including sustained IRS funding.  

“We should ensure ultra-wealthy taxpayers pay what they owe and play by the same rules by maintaining the President’s investment in the IRS,” White House national economic adviser Lael Brainard told reporters Wednesday.

IRS funding has been a  target for Republicans and conservatives since Congress approved nearly  $80 billion in funding  through the Inflation Reduction Act.

The GOP has promised to reduce that funding, having already succeeded in clawing back $20 billion. House Speaker Mike Johnson, R-La., has promised to strike at least $10 billion more from the 2025 budget.

Rob Wile is a breaking business news reporter for NBC News Digital.

Kate Dore is a Certified Financial Planner professional and a reporter on the Personal Finance team, covering tax planning.

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The Best Methods for Paying Off Credit Card Debt

Carrying a growing balance on high-interest credit cards can put a huge financial strain on your monthly budget. Whether it's an unexpected expense —like a car repair or medical bill—or you're going through a period of reduced income, being saddled with credit card debt can make it feel impossible to get ahead financially. If you're struggling to make a dent in your credit card debt, here are some of the best ways to create a plan to become debt-free once and for all.

The debt snowball method

The debt snowball method focuses on paying off your debts in order of smallest balance to largest. You make minimum payments on every debt except the smallest, where you pay as much extra as possible until it's paid off. The idea is that getting "wins" by paying off smaller debts quickly can provide much-needed motivation to keep going. However, this method typically results in paying more in interest over time. Here's my guide to deciding if the debt snowball is right for you .

The debt avalanche method

Compared to the snowball method, the avalanche method involves listing out all your debts from highest interest rate to lowest interest rate. You make minimum payments on every debt except the highest interest rate one, where you throw all extra money until it's paid off. This is the fastest mathematical way to get out of debt while paying the least amount of interest charges. This can be especially helpful if you have one or two debts with significantly higher interest rates than the others. The downside is you may not see entire debts paid off for a while, which may sap a bit of your motivation.

The debt snowball method is often recommended for individuals who need the psychological motivation of quick wins to stay motivated in their debt repayment journey. The debt avalanche method, on the other hand, is considered the most cost-effective approach from a pure numbers perspective, as it minimizes the amount of interest paid over time.

Debt consolidation loan

Debt consolidation can look like an easy solution if you have multiple loans or credit cards and are struggling to keep up with all the separate payments. Taking out one loan with a lower interest rate to pay off all your credit card balances at once can streamline the repayment process to a single payment.

You may qualify for a much better interest rate than your cards through a bank, credit union, or online lender with a debt consolidation loan or personal loan. Balance transfer credit cards that offer 0% interest for 12-18 months can provide breathing room if you can pay off the full balance during that period—more on that below. But first, keep in mind: Debt consolidation loans aren't necessary in many cases. At the end of the day, debt consolidation loans are financial products, which means financial institutions wouldn’t offer them to you if they didn’t make money from them.

Balance transfer

With a balance transfer , you move your existing credit card balance(s) over to a new credit card that offers an introductory 0% APR promotion for a set period of time, usually 12-18 months. If executed properly, you can use those months to aggressively pay down the debt without accruing additional interest charges. The key is to have a plan to pay off as much of the balance as possible before the 0% APR period expires. Many balance transfer cards charge a 3-5% fee on the amount transferred, but this is usually still less expensive than the interest you'd pay without the transfer. Here are some of the best balance transfer credit cards to explore.

Debt management plan

If you're having trouble managing payments to multiple creditors, consider reaching out to a non-profit credit counseling agency. A qualified (crucially, non-profit) credit counseling agency will give you free debt analysis. And by law, they must serve your best interests and recommend a debt solution that works for you, not them. They can put you on a debt management plan where they negotiate with your creditors for lower interest rates and fees. All the money you pay goes directly toward your debts, but there may be costs to use such a program. There’s often a setup fee of up to $75 and an ongoing monthly fee of between $25 and $75. Look into qualified non-profit credit counseling agencies here .

Borrowing from friends and family

Now, I'm not suggesting you create an untenable— not to mention uncomfortable —situation with your loved ones. But if your circumstances allow, one option to avoid high interest rates is borrowing money interest-free from a loved one. If exploring this route, be sure to clearly document the repayment terms and amounts in writing to protect the personal relationship.

No matter which method you choose, review your full financial situation and make a plan you can stick with until you're debt free. Seeking professional guidance can help determine the right debt repayment strategy for your unique circumstances.

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These 2 debt relief options won't hurt your credit, according to experts

By Aly Yale

Edited By Matt Richardson

June 11, 2024 / 12:09 PM EDT / CBS News

With inflation and interest rates high, many consumers are struggling financially. The burden can be particularly heavy for those carrying credit card debt . The average interest rate on credit cards now sits at over 21% , up from just 14% a few years ago. The result is steadily rising balances and minimum payments that can often feel out of reach.

Fortunately, there are options for tackling that debt effectively — and without hurting your credit score in the process. We asked some experts for their thoughts on the best ways to do so.

See what debt relief option works best for your situation here now .

2 debt relief options that won't hurt your credit, according to experts

Looking to reduce your debt without damaging your credit score? Here's how the experts we spoke to suggest you proceed.

Debt consolidation

Consolidating your credit card debts — or moving them all to one lower-interest product like a personal loan — is arguably the best way to tackle your debt if you want minimal damage to your credit. 

"Debt consolidation can be helpful if you can get a lower interest rate," says Kendall Meade, a financial planner at SoFi. "It reduces the total amount you owe and allows you to pay it off more quickly."

Initially, you might see a small dip in your credit score , as taking out a new loan requires a hard credit inquiry. This lowers your score by three to five points for two years, according to Saundra Curry, co-founder of BC Holdings of TN, a financial wellness and educational platform.

Consolidation could also hurt your score by reducing the average age of your accounts, which accounts for 15% of your score, Curry says. First, it adds a brand new loan to the mix. It can also hurt if you close out the credit card accounts you're consolidating — especially if you've had them for a while. 

"If the average age falls below 10 years, it will lower your score," Curry says. 

Still, many experts say consolidation is your best option for paying off debts while minimizing credit damage. And if you make on-time payments consistently and don't rack up additional credit card debt, it could actually help your score in the long run.

Explore your debt consolidation loan options here today .

Debt management plan

A debt management plan is your next-best option if you want to pay off debts without too much of an impact on your credit score. With these, a credit counseling or debt relief company secures lower rates with your creditors, and then develops a payoff plan on your behalf. You'll then make monthly payments to your debt relief company, which will divvy that out among your creditors as necessary. 

"Debt management programs can provide additional assistance," says Brittany Pedersen, director of deposit and payment operations at Georgia's Own Credit Union. "Not only can you consolidate your debt into one payment, in many cases, you can get your interest rate reduced. You pay the debt management company, and this is reported to your creditors."

A debt management plan won't directly impact your credit, but there may be some elements of these plans that can bring your score down along the way. Some plans may require you to close accounts, for example, which could lower your credit age and take down your score. This might also send your credit utilization ratio up, as you'd suddenly have less credit available. This could lower your score as well. 

"While consolidation loans have the least impact on your credit, debt management programs are also a good option," Pedersen says. 

See if a debt management plan is right for you now .

Create your own debt reduction plan

You can also just DIY your debt strategy. You can use the snowball or avalanche payoff method, or combine the two into what Meade calls the "fireball" method.

"I tell my clients debt with interest rates lower than 7% can be considered 'good debt,' while 7% or higher is considered 'bad debt,'" Meade says. Once you know which camps your debts fall into, pay the minimums on all your accounts, and put any extra money you have available to your "bad debt" with the lowest balance. Once that's paid off, put the money from that payment toward the next-lowest bad debt, and so on.

Curry says focusing on one debt at a time — while making minimums on the others — is a great way to "turbo charge" your debt payoff . It also won't hurt your credit and, Curry says, will actually increase your score as you reduce your debts.

"The best way to eliminate debt is through self-management with strict budgeting and a plan to reduce debt and interest charges quickly," says Michael Sullivan, personal finance consultant at credit counseling agency Take Charge America. "It costs nothing and has no negative impact on credit ratings."

Options that will hurt your credit

The two things you don't want to do if your credit score is a priority? That'd be debt settlement or filing for bankruptcy .

With settlement, a debt relief company negotiates with the creditors on your behalf, trying to get them to settle your debts for less than you owe. Typically, these require you to stop making payments for some time — a sure-fire way to hurt your credit score.

"The basic idea of withholding all payments until creditors agree to settle for less than the amount owed, requires accounts to go to default and collections, causing havoc on the your credit report for seven years," Sullivan says. "If successful, it can also result in amounts forgiven being declared as income and subject to taxes."

Bankruptcy is even worse. Not only does it come with hefty fees, but it stays on your credit report for up to 10 years. 

"Bankruptcy is a last resort," Pedersen says. "It's costly and does the most damage to your credit score."

Talk to a professional

If you're not sure how to proceed with tackling your debts — or you need help safeguarding your credit score — contact a credit counselor in your area. They can help you create a personalized plan to pay off your debts while minimizing the impact on your credit. 

And if you opt to use a debt relief company, be sure to shop around first. Check reviews, compare fees, and ask for recommendations from people you trust. You can also research them with the Better Business Bureau to assess their business practices.

Get started here .

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• Country of residence/citizenship

After inputting some personal information, such as your age and state of residence, along with your trip details, like travel dates, destination, and trip costs, you'll get an instant quote for the plans available for your trip. And from there, it's easy to compare each option based on your coverage needs and budget.

Now let's look at a few examples to estimate Tin Leg's coverage costs.

As of April 2024, a 23-year-old from Illinois taking a week-long, $3,000 budget trip to Italy would have the following  Tin Leg travel insurance quotes:

Premiums for Tin Leg plans are between 1.8% and 3.9% of the trip's cost, well below the average cost of travel insurance . It's also relatively cheap compared to many of its competitors

Tin Leg provides the following quotes for a 30-year-old traveler from California heading to Japan for two weeks on a $4,000 trip:

Once again, premiums for Tin Leg plans are between 3.4% and 5.2%, below the average cost for travel insurance.

A 65-year-old couple looking to escape New Jersey for Mexico for two weeks with a trip cost of $6,000 would have the following Tin Leg quotes:

Premiums for Tin Leg plans are between 6.9% and 9.4%, which is roughly in line with the average cost for travel insurance. This is to be expected, as travel insurance is often more expensive for older travelers.

How to File a Claim with Tin Leg Travel Insurance

One exceptionally nice aspect of Tin Leg is that you can report a claim online or over the phone. You can contact Tin Leg's claims department at 844-240-1233 or by email at [email protected] . It's available on weekdays between 8 a.m. and 4 p.m. ET.

You'll be asked to fill out a claims form that asks about your trip details and the issue you faced. Tin Leg will then ask you to file supporting documents related to your claim. If you're filing a claim because you canceled a flight due to an illness, they'll likely require medical documentation that supports this claim. 

Tin Leg Customer Service and Support Experience

Tin Leg is well reviewed, receiving an average of 4.6 stars out of five on SquareMouth across nearly 3,800 reviews. Reviews on its Better Business Bureau are consistent with its SquareMouth score, also averaging 4.6 stars across over 110 reviews, admittedly a limited sample size. Additionally, Tin Leg is not certified with the BBB.

While most customers reported a smooth and speedy claims service, some noted that communication from Tin Leg during the process can be spotty. Additionally, customers complained about their claims being denied due to requirements they were unaware of when purchasing coverage. One customer wrote about how they had to cancel a trip because of work, but hadn't been working at their company long enough to qualify for trip cancellation coverage.

See how Tin Leg travel insurance stacks up against the competition. 

Tin Leg Travel Insurance vs. AIG Travel Guard

To compare Tin Leg travel insurance to Travel Guard , we'll consider the coverage limits from their highest-rated, Gold and Travel Guard Deluxe plans, respectively.

With AIG Travel Guard's Deluxe plan, you'll get:

• Trip cancellation coverage up to $150,000
• Trip interruption coverage up to $225,000
• Emergency medical coverage of $100,000
• Coverage for baggage loss, theft, or damage up to $2,500
• Travel delay coverage of up to $1,000

Comparing those coverages with Tin Leg's Gold plan, you'll see that AIG's coverages are better than Tin Leg's in all areas except one – emergency medical. While AIG offers emergency medical coverage of $100,000, Tin Leg's coverage limit is $500,000 (in primary coverage).

If the medical coverage piece is what's most important to you, Tin Leg would be the right choice in this scenario. That said, having $100,000 in emergency medical coverage is nothing to scoff at, so it may come down to comparing premium costs.

Remember that the premium costs will depend on the traveler's age, trip destination, and trip cost. So you'll need to compare these two insurers using your trip-specific information to get a solid idea of the costs associated with each plan.

Read our AIG Travel Guard insurance review here.

Tin Leg Travel Insurance vs. Allianz Travel Insurance

Both Allianz Travel Insurance and Tin Leg travel insurance offer a variety of travel insurance plans designed for different types of travelers with varying types and degrees of coverage.

In this comparison, we'll look at Allianz Travel Insurance's most popular single-trip plan, the OneTrip Prime plan, compared to Tin Leg's Basic plan.

With Allianz Travel Insurance's most popular single-trip OneTrip Prime plan, you'll get:

• Up to $100,000 in trip cancellation coverage
• Up to $150,000 in trip interruption coverage
• $50,000 in emergency medical coverage
• Up to $1,000 in coverage for baggage loss, theft, or damage
• Up to $800 in travel delay coverage

In looking at Tin Leg's basic plan, you'll find that these two policies offer the same $50,000 coverage limit for emergency medical. Still, Allianz Travel Insurance's plan exceeds Tin Leg's in the other coverage limits. That said, you'll have to quote both of these policies using your personal trip information to make an informed decision, especially if cost is the most important factor to you.

Read our  Allianz travel insurance review here.

Tin Leg Travel Insurance vs. Credit Card Travel Insurance

Do you have a travel credit card? If so, consider the type of insurance coverage it may (or may not) offer. Some basic coverages, like primary rental car insurance, are provided through your credit card's travel protection . And if you don't need medical coverage or don't have a lot of non-refundable trip expenses, the coverage offered by your credit card could suffice.

That said, don't forget that credit card coverage is sometimes considered secondary coverage. That means you'll have to file a claim with any other applicable insurer before filing a claim with your credit card company.

Read our guide on the best credit cards with travel insurance here.

Tin Leg Travel Insurance FAQs

All policies except Economy cover pre-existing medical conditions as long as you purchase your policy within 15 days of trip deposit.

You have 14 days after you purchase your policy to refund your Tin Leg policy, as long as you haven't left for your trip. 

All Tin Leg travel insurance policies include 24/7 emergency assistance services.

Tin Leg claims can be submitted online or over the phone at 844-240-1233 during business hours. You'll need to provide details about your trip and the problem that arose during your trip. The claims process is quick, according to customer reviews, but be sure to review your policy for guideline related to claims. 

Yes, all tiers of Tin Leg travel insurance offer cancellation coverage if you or a non-traveling loved one contracts COVID-19, though you will need to provide a positive test to receive reimbursement. 

Why You Should Trust Us: How We Reviewed Tin Leg

To review Tin Leg travel insurance, we looked at several different factors. These included premium costs, coverage categories, and claim limits. In addition, we compared the policies and premiums available through Tin Leg to those from the best travel insurance providers to see how they stack up — and also considered any additional add-on coverages available and the ease of getting a quote and filing a claim.

In the end, the best policy for you will be the one that provides the coverage you need and limits you're comfortable with while also staying within budget.

Read more about how Business Insider rates insurance products here.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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