p.s. Heads up! Bank of Massachusetts is a bill. It is now called HD 0185.

check out or google “MA PUBLIC BANK” or call me for an updated version

The great hole in the plan is that banks loan money, not invest in shares. Most L3C’s (low profit, limited liability company) need at least 50% equity to get the other 50% as a loan for start-ups and grow-ups. This hole is not the bank’s fault because the regulations so limit banks to loans.

In addition to the CGB, we need a way to raise equity funds and provide liquidity for those investors and companies for which the equity investments are made in L3C enterprises. Such a plan exists at the theory level and general design stage. Under development is “Small Business Investment Exchange” (SBIE) ( http://sbic.wetpaint.com ). Both CGB and SBIE should co-evolve.

A good funding plan involves securities and a good pitch. It also helps to follow a successfully implemented plan. Such a successfully implemented plan exists and has been operational for about a year. That plan was created by Cooperative Fund of New England, know as the Cooperative Capital Fund of New England. The prospectus is online ( http://cooperativefund.org/files/CCF%20PROSPECTUS.pdf ) and much of the descriptive materials is also online.

The prospectus describes two instruments: First Loss Money Notes which are subordinated to Capital Notes. I suggest we take a very careful look at this funding system. I recommend we utilize the funding approach of CFNE for CGB. I plan to use it for SBIE. Here’s the summary of CCF:

Overview
The Cooperative Capital Fund of New England, Inc. is conducting this offering and is referred to throughout this prospectus as “CCF” or “we” or “us.” We are offering Social Capital Notes and First Loss Money Notes. The Social Capital Notes will be senior to the First Loss Money Notes. The principal of and accrued, but unpaid, interest, if any, on the Social Capital Notes will be repaid in full before any payment of interest on the First Loss Money Notes is made. The Social Capital Notes and First Loss Money Notes, which we refer to collectively as the “Notes,” are unsecured, nonrecourse obligations of CCF. Proceeds raised from the sale of Social Capital Notes will be held in escrow until proceeds received from the sale of First Loss Money Notes total at least 15% of the Social Capital Notes proceeds. Together the proceeds received from the sale of the Social Capital Notes and the First Loss Money Notes constitute the Investment Fund (the “Fund”). The Fund will be invested in eligible cooperative organizations as described elsewhere in this prospectus, and the cash flow from those investments will be used to repay the Notes.

CCF aims to raise $1,000,000 through the sale of Social Capital Notes to a maximum of $1,500,000, and a minimum of $60,000 through the sale of First Loss Money Notes to a maximum of $500,000. In the aggregate between the two classes, the minimum to be raised is $460,000. First Loss Money Notes must equal or exc be used to repay the Social Capital Notes first and then First Loss Money Notes. It is anticipated that the Social Capital Notes will be repaid within eleven years, with half of the repayment occurring within 7.5 years. The Social Capital Notes and First Loss Money Notes can earn interest at a rate of 0 to 5% annually, which rate will be chosen by the investor at the time of subscription. Interest on the Social Capital Notes will be paid in April of the spring of the following year based on the weighted average balance outstanding of all Notes. At this writing the first loss money collected totals $170,000.

All funds raised will be held in escrow until we raise the $460,000 aggregate minimum in Social Capital Notes and First Loss Money Notes, including at least $60,000 in First Loss Money Notes. No interest will be paid on the First Loss Money Notes until all Social Capital Notes are repaid with interest. The offering will continue for up to 24 months (at CCF’s discretion) from the launch date, and must during that time reach its minimum funding level of Social Capital Notes and First Loss Money Notes. If the minimum funding levels are not reached by December 13, 2009, the offering will be terminated, and the principal sum of the Notes will be refunded to the investors along with pro-rata interest earned on the escrow account.

Earnings on the escrow account may be more or less than the pre-selected interest rate of the Notes.
First Loss Money Notes will be repaid only after all Social Capital Notes are repaid with interest, and will bear any losses CCF experiences that cannot be covered through a loan loss reserve, which is estimated at 18% of invested assets over the life of the Fund. The loan loss reserve is built through the spread between CCF’s investments income (estimated at 11%) and CCF’s costs of funds (estimated at 3%), and CCF’s direct costs to operate which will vary depending upon the size of the Fund and subsidization by the Cooperative Fund of New England. Once all Notes have been repaid with interest, the surplus, if any, from investments made with proceed from the Notes will be used to fund subsequent, separate funds for capitalizing cooperative organizations. The Notes are non-recourse obligations of CCF that constitute a participation in the Fund, and that will be repaid based on the performance of the investments made with the Fund. CCF may have multiple funds in the future. Each fund will be independent, funded by separate notes and be invested in separate assets.

http://cooperativefund.org/files/CCF%20PROSPECTUS.pdf

Regards,
Jim Miller