Risk: Rising land prices
ELC's financial modelling assumes average land costs of £8,000 per acre, rising with inflation. If land prices rise sharply the cost of small farms could increase, potentially compromising their objective of providing affordable land. The ELC model can be applied anywhere in England and Wales, so they can develop clusters in the first instance in more affordable locations where there is also demand. ELC have also taken the following steps:
- ELC have been able to secure charitable loan funding at preferential interest rates to purchase land.
- They are proactively seeking donations of land and money to buy land.
- Should it become necessary to increase the cost of smallholdings, ELC can support farmers in developing diversified business activities to increase their income such as educational courses or camping.
- ELC apply for grant funding to contribute to the cost of developing new sites or to ongoing costs to the smallholders.
Risk: Failure to meet grant targets
ELC have set themselves realistic grant targets per site, based on their performance to date. ELC will continue to develop this income stream through further developing their fundraising strategy, and continuing to build relationships with key potential funders. ELC are currently meeting their fundraising targets, having employed a dedicated fundraiser in 2018.
Risk: Failure to attract sufficient financing
ELC's business plan requires substantial input of shareholder funds between now and 2020. If they cannot attract those funds, the viability of their proposition would be compromised. ELC intend to mitigate this risk through:
- Seeking out opportunities to diversify financing. For example, once ELC are granted permanent planning permission, they can apply for mortgages and release share capital for the purchase and development of new sites;
- Build long-term relationships with key potential finance partners.
- Continuing to grow their brand presence and credibility, attracting new potential investors through our networks, press coverage and track record.
- Staggering ELC's funding drives into manageable chunks, balancing the costs of planning and implementing regular share offers with the cost of servicing shareholder funds held for long periods.
Risk: High cost of borrowing
ELC's business plan assumes average interest paid at 2.5% overall for share capital and 2% for debt financing. This is based on actual figures up to 2019. ELC are fortunate to have a number of shareholders who have fixed their rate of interest at between 0% and 2%. They also have committed charitable loan funders who have fixed the interest rate for their loans at 2% to enable the cooperative to buy land.
ELC will continue to seek social investors whose primary focus is on social and environmental returns, allowing them to successfully offer relatively modest interest rates on share capital. To date, gifts of time and resources have played a significant part in enabling ELC to keep the cost of holdings as low as possible.
However, if necessary, ELC can offset any increase in cost of borrowing by commensurately increasing the cost of holdings. The extremely low projected price of ELC smallholdings in comparison with market value means that they have some flexibility in the level of their lease price before their affordability aims are compromised. Over the long term, ELC will start to reduce the equity stake in the business through buying out shareholders who wish to exit using company profits, rather than issuing new shares. This will steadily reduce the total cost of borrowing to the business.
Risks associated with this Share Offer
As with any community Share Offer, risks include:
- The cooperative may not be in a position to pay interest.
- The cooperative may have to suspend your rights to withdraw shares.
- You may lose some or all of the money you pay for your shares.
As the cooperative is incorporated with limited liability, each Member’s liability is limited to the amount paid for their shares. If the cooperative is ever wound up, its assets will first be used to meet its liabilities; next to repay members for their shares; finally any surplus remaining will be passed onto a nominated organisation with similar objectives.
The cooperative has paid a maximum of 3% interest on community share investments for the past five years, however past performance does not guarantee future performance.