Community financing is an alternative way to purchase land and buildings without the use of banking institutions. It’s a financing system based on community participation, trust and accountability. The Community Financing model has been used informally for generations, and in more recent years cooperatives and community organizations have begun to formalize the practice and make it legally viable for all participants. Land in Common has adapted our model from the practices of the Walnut Street Co-op in Eugene, OR and the Los Angeles Ecovillage.
We initiated our community financing program in 2008 to acquire our first parcel of land, now home to the Wild Mountain Cooperative. The land was purchased with the collective power of generous donors, a partial owner-financing arrangement, and 14 community lenders (including people who helped refinance loans along the way) providing a total of $117,000 in loans. No banks have been involved!
Our Goals and Values
Community financing has a number of interconnected values-based goals: first, we seek to create a viable model for grassroots, relationship-based financing that eliminates the involvement of for-profit banks in the ownership of land and housing. Second, we want to offer an ethical investment and savings option for people in our wider community who want their money to do good work while also retaining reliable value over time. And finally, we aspire to a financing model that builds genuine community and connection rather than reinforcing isolation and division. Each element of our model is designed with these goals in mind, and we are committed to learning and improving our structures as we go forward.
How It Works
Loans come from our community of support, and can be small or large. We encourage wide participation, even if a community member only has a small amount to lend. At the same time, we do need to be mindful of the administrative work of managing a large number of loans. To that end, our current minimum loan amount is $2,500, though we may reduce this amount depending on the nature of the project.
We understand that many people may see their loan as a financial investment, and are choosing between lending to Land in Common or investing this money elsewhere. We also know that many people are seeking investment options that prioritize social benefit over high returns and would gladly put their money into a program that does good work in the world if they can be assured that their money will retain its value over time in the face of inflation. We offer custom interest rates for each loan, ranging from 0% to 5%, so that lenders can balance these needs and values for themselves. We also encourage lenders to consider the many nonfinancial “returns” that come from participating in the success of Land in Common and its collaborators.
Our loan terms are for 5, 10, 15, 20, 25 or 30 years with the option to renew the loan at the end of each selected term. Our lenders choose which term is best for them.
Thirty years is a typical term for a standard home mortgage from a bank– this allows people with limited incomes to pay large amounts over time. Unlike a bank or another institutional lender, most individuals cannot predict the course of their lives 30 years ahead and therefore are not prepared to commit their assets for that long. This is why our loan system is different. When someone lends to Land in Common, we pay their loan back for the selected term as if it were a full 30-year loan (meaning smaller regular payments than if it were calculated as, for example, a five-year loan). At the end of the selected loan term, we provide the lender with three options: they can extend their loan for another term, they can request full repayment of the remaining balance of your loan (this is called a “balloon payment”), or they can donate all or part of the balance of the loan to as a tax-exempt gift to Land in Common.
We pay balloon payments by refinancing with other lenders. It’s like a “relay race” of community support, with one lender passing the baton to the next. In this way, members of our community can “take turns” in the 30-year financing process without binding up their investments for the entire 30 years.
Each loan is secured by a formal, notarized loan agreement defining all terms and conditions precisely. We do not put up the land as collateral. As our loan agreement states, “the security of the Loan is based on trust, on the integrity of relationships with Land in Common and its Board of Directors, and on the legal power granted to this Loan Agreement under the laws of the United States and of the State of Maine.”
We have utilized our community financing structure to successfully purchase our land in Greene, and we are excited to build on this work with other projects. We believe that this model can be a powerful tool for securing land while also building committed communities of support and demonstrating viable possibilities for ethical, grassroots financing.
Please get in touch if you would like more information about how the community financing model works, or if you would like to explore a collaboration!