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  • 11 May 2016 9:12 AM | Scott (Administrator)

    Wellspring Investment Fund - Direct Public Offering for

    Wellspring Harvest Cooperative

    Springfield's source for year-round local produce 

    10,800 sq ft  commercial hydroponic greenhouse, growing lettuce, greens and herbs

    And a 1,000 sq ft agricultural education and training Greenhouse 

    An opportunity to invest in your values! 

    We are seeking investments of a minimum of $1,000 ($5,000 for qualified investors) with a minimum five (5) year term at 3% interest paid after two years.

    Your investment will support

    • A sustainable and resilient local food system
      • Locally grown, year round, produce for local markets including Springfield schools.
      • Hydroponics uses only 10% the water, 15% of the nutrients and can produce 10 times the yield compared to conventional agriculture. Integrated pest management - close to organic with a lower price tag.
      • Elimination of long distance transportation reduces the carbon footprint.
      • Safe and traceable produce. Growing hydroponically eliminates the risk of soil contamination.
    • Local job creation in Springfield’s under-served communities.
    • Worker ownership, profit sharing and asset building opportunities.
    • Wellspring cooperative businesses are connected through a mutually supportive network to increase their resiliency.
    • Contribution to the vitality of the local economy.
    • Community and school involvement, creating opportunities for education and hands on experience


    Wellspring Harvest 

    Wellspring Harvest is a worker-owned cooperative that will operate a commercial hydroponic greenhouse in Springfield, Massachusetts, supplying fresh greens all year round to institutional, retail and local community markets. Intent to purchase letters have been signed with Baystate Medical Center, Springfield and Worcester Public Schools, Squash Trucking, Big Y Supermarkets, and River Valley Market and Franklin Community food coops.

    The greenhouse will contribute to the much needed economic vitality and rejuvenation of the Indian Orchard neighborhood by creating good jobs and serving as a catalyst for other affiliated ventures such as food processing and a food cooperative. Worker-owners will also be able to build meaningful equity in the company. 

    COMMUNITY AGRICULTURE EDUCATION CENTER.

    The Cooperative also plans to develop a certification program that will allow students from local high schools, community colleges and universities to acquire practical and “in-demand” skills to operate and manage a growing number of hydroponic projects nationwide. The site will serve as a laboratory for the community and students to gain hands on experience in urban agriculture. The community and educators are already involved in providing input into the site plan and how it can be used for projects such as community gardens, edible landscapes, composting, vermiculture, aquaponics, and energy production through a bio-digester.

    BROADER IMPACT

    Wellspring Harvest Greenhouse is part of the broader mission of the Wellspring Cooperative Corporation to create a network of worker-owned companies supported by the purchasing power of area anchor institutions that provide jobs for low income residents of Springfield, MA.  Anchor institutions purchase more than $1.5 billion worth of goods and services a year, largely from outside the region. A number of these anchor institutions are working with Wellspring to keep more of their purchasing dollars circulating locally, including Baystate Health, Sisters of Providence Health System, University of Massachusetts, Western New England University and Springfield Technical Community College.

    The 5 year goal of the Wellspring Cooperative is to create over 100 jobs through 10 new worker-owned companies. Wellspring Cooperative has a number of businesses in development and Wellspring Harvest is the second worker-owned cooperative that the network has incubated. The first cooperative, Wellspring Upholstery, started in 2014, and is doing well with 6 workers, 3 of whom have already become members of their cooperative.

    For More Information about this investment opportunity, a prospectus is available at: 

    http://wellspring.coop/support/wellspring-investment-fund

    Or Contact:    Fred Rose, frose@pubpol.umass.edu  413-522-2204

                           Emily Kawano, emilykawano@gmail.com

  • 20 Oct 2015 9:32 AM | Scott (Administrator)

    Artisan Beverage Cooperative is excited to announce the launch of its Direct Public Offering. Our DPO is an opportunity for Massachusetts residents to support cooperative business, local and regional agriculture, and truly fair trade practices.

    The Co-Op is offering up to $1,500,000 in shares of series B preferred stock, 150,000 shares at $10 per share, to finance the purchase of production equipment, ingredient inventory, packaging materials, marketing materials and sales support; to provide additional operating capital; to increase the Company’s production and sales; and to redeem some outstanding class B and class C stock held by the original owners of Katalyst Kombucha LLC and Green River Ambrosia LLC. The Preferred Shares are non-voting, non-convertible shares with a target dividend of 5%. The minimum individual investment is $2,500.

    - See more at: http://dpo.artbev.coop/
  • 14 Jan 2014 11:55 PM | Scott Reed
    Lynn Benander, President, Co-op Power and Northeast Biodiesel LLC, lynn@cooppower.coop, office: 877-266-7543, cell: 413-552-6446, 15A West Street, Hatfield MA 01088, www.cooppower.coop

    Audio Recording:

    Powerpoint presentation

    Please take our survey to help us in planning future events.

    Tonight’s conversation is about values and ethics, about service to the common good, about the toll corporate greed has taken on our families, on our health, our communities and our planet. It’s about how we can make a difference, even today with wealth and power concentrated in the very few.

    Sheila Bair, Chair of the FDIC, said, “In policy terms, the success of the financial sector is not an end in itself, but a means to an endundefinedwhich is to support the vitality of the real economy and the livelihood of the American people. What really matters to the life of our nation is enabling entrepreneurs to build new businesses that create more well-paying jobs, and enabling families to put a roof over their heads and educate their children.”

    It’s so obvious that the financial sector’s success must be evaluated based on how well it supports our lives, yet in the media, we only hear about how well the financial sector is supporting the financial sector.

    Where we put our time and money shapes the world today and tomorrow.  Where we buy things, where we work, where we invest all determine what the world will be like.  If we invest our time and money in sustainable and just enterprises, our world will be more sustainable and just.  We have more power than we are often aware of.

    What makes a good investment?

    • ·        Do we have an infinite supply of cheap raw materials?
    • ·        Is perpetual growth possible? 
    • ·        Will energy and transportation always be cheap?
    • ·        Will businesses always be able to avoid paying the cost for the damage they do to the environment?
    • ·        Will businesses continue to be able to create wider and wider divides between people who have and those who don’t?

    In the past, and even now, businesses that are based on these flawed ideas are bringing in the biggest returns, but how long will that last?  In the recession, they lost 1/3 of their asset base.  What investments are based on real things, maybe bringing a lower return now, but maybe bringing a return based on things that are real, and bringing returns that are, in the long run, far more dependable on into the future? 

    Maybe the best investments now are local businesses, using raw materials sourced locally, serving a local market, and operating in a way that is just and sustainable?

    Why do small local businesses need local investment?

    • ·        Banks aren’t lending.
    • o   Many are start-ups and banks aren’t lending to start-ups.
    • o   There often isn’t a majority owner with deep pockets to guarantee the loan.
    • o   Banks don’t have experience in assessing the risk in new industries/business models that are needed in today’s new economy.
    • ·        Venture Capital is too costly.
    • o   Profit pressure too high and exit strategies are too disruptive.

    If one in every three small businesses hired one new person, we would not have any unemployment.  Small businesses need access to capital in order to operate effectively.  This local investment movement is addressing an important need in our communities.

    Traditional Tools for Investors to make Local Investments

          Direct Public Offerings

          Private Placements

          Preferred shares

          Cooperative memberships and Member loans

          Unsecured loans

          Secured loans

          Designated bank CD deposits

          Loans to local loan funds

          Direct grants

          Grant to a foundation that makes local grants

    New Tools for Investors to make Local Investments

    These new tools are designed to ensure the small business isn’t asked to pay more for back to the investor than they are able to... making it more likely they will succeed in their business venture.

          Prepaid products and services – You pay for what the business will sell up front.

          Convertible debt – You have an opportunity to get shares in the business or have your debt repaid at the end of the loan term.

          Royalty financing – You get a fixed percentage of sales until your loan is paid off.

    Let’s Move our Money from Wall Street to Main Street!

    Here are recommendations from the members of Co-op Power:

    • ·        Buy from local businesses and support PV Local First (www.pvlocalfirst.org).
    • ·        Move all of your money to your local credit union. Move your checking, savings, IRA's, money market funds.  Click here to find a credit union near you: (http://www.ncua.gov/NCUAMapping/Pages/NCUAGOVMapping.aspx)
    • ·        Work with a lawyer to create a self-directed IRA. Here’s an article Scott Reed wrote in July 2012 to help us get started: https://dl.dropboxusercontent.com/u/5022110/Self%20Directed%20IRA%20article.docx
    • ·        Invest in community loan funds - Equity Trust (equitytrust.org), Franklin County CDC Loan Fund (www.fccdc.org/lending), Common Capital (www.common-capital.org), and Co-op Fund of New England (www.cooperativefund.org)
    • ·        Participate in Common Good Finance - R-Credit Program (rcredits.org)
    • ·        Join local consumer co-ops and make co-op member loans - Co-op Power (www.cooppower.coop), River Valley Market (rivervalleymarket.coop), Franklin Community Co-op )Green Fields Market and McCusker’s Market)(www.greenfieldsmarket.coop), Leverett Food Co-op
    • ·        Join investing networks - Invest Here Now (invest-here-now.wildapricot.org), Slow Money – PV Grows (www.pvgrows.net), or start your own investing club or Local Investment Opportunity Network (LION)
    • ·        Invest directly in local businesses
    • ·        Invest in targeted CD's that support local businesses. Here’s an example of Eastern Bank’s CD program for Equal Exchange in Boston: https://www.easternbank.com/site/business/banking/savings_cd/Pages/EqualExchangeCD.aspx
    • ·        Invest in our Homes with energy efficiency and renewable energy upgrades.  If you haven’t received your no-cost MassSave home energy assessment yet (or you haven’t had one in the last 18 months and are ready for more work) or if you want an assessment for your church, business or another building you own, contact Co-op Power (www.cooppower.coop), Energía (energiaus.com) or the Center for EcoTechnology (CET) (www.cetonline.org).  Contact Energía or Co-op Power to get your air sealing and insulation work done, using all of the great financial incentives available now. If you’re ready for a solar installation, contact Co-op Power and get discounts from one of the solar installers in their vendor network or search for an installer NESEA’s Sustainable Green Pages (http://www.nesea.org/sgp/).
    • ·        Create Main Street projects that will build our local economies in partnership with local community development corporations, USDA Rural Development and SBA.

    Great Resources

    A New Foundation for Portfolio Management by Leslie Christian published in 2011 by RSF Social Finance.  This paper explores the assumptions investment advisors use to analyze investment options and recommends a new set of assumptions for today’s world.

    https://dl.dropboxusercontent.com/u/5022110/A-New-Foundation-for-Portfolio-Management.pdf

    Local Dollars, Local Sense by Michael Shuman probes the future of investing -- making the case for investors to put their money into building local businesses and food and energy systems, and otherwise creating healthy regional economies that meet the stresses of a post-peak-oil world. The book tells readers how to find or develop opportunities for investing locally, explains the obstacles, and introduces readers to investors who have taken on the challenge and put their theories about local investing into action.

    Here’s a transcript of a radio interview from Michael Shuman: https://dl.dropboxusercontent.com/u/5022110/Shuman%20radio%20transcript%202012.webarchive

    Owning Our Future: The Emerging Ownership Revolution by Marjorie Kelly. 

    As long as businesses are set up to focus exclusively on maximizing financial income for the few, our economy will be locked into endless growth and widening inequality.  But now people are experimenting with new forms of ownership, which Marjorie Kelly calls generative: aimed at creating the conditions for life for many generations to come. These designs may hold the key to the deep transformation our civilization needs.

    Locavesting: The Revolution in Local Investing by Amy Cortese

    Small businesses are the backbone of the American economy, generating eighty percent of jobs and half of GDP. In dozens of towns and cities across the country, an extraordinary experiment in citizen finance is underway. From Brooklyn, New York to Vernon County, Wisconsin to Port Townsend, Washington, residents are banding together to save thei small businesses and Main Streets from extinction.  And they are reaping rich rewards in the process.  These citizens are at the vanguard of a grassroots revolution that journalist Amy Cortese calls “locavesting”.

    Our Black Year: One Family's Quest to Buy Black in America's Racially Divided Economy by Maggie Anderson. Maggie and John Anderson were successful African American professionals raising two daughters in a tony suburb of Chicago. But they felt uneasy over their good fortune. One problem is that most of the businesses in their communities are owned by outsiders. On January 1, 2009 the Andersons embarked on a year-long public pledge to "buy black." They thought that by taking a stand, the black community would be mobilized to exert its economic might. Drawing on economic research and social history as well as her personal story, Maggie Anderson shows why the black economy continues to suffer and issues a call to action to all of us to do our part to reverse this trend.

    Facilitator:  Scott Reed, Invest Here Now (invest-here-now.org), sreed@avacoda.com

    Notes: Lynn Benander

  • 14 Jan 2014 11:35 PM | Scott Reed

    Nuts and Bolts of Local Investing

    Rick Feldman, CEO at Universal Quality Machine LLC, 650 Beaulieu St, Holyoke, MA 01040, (413) 533-7001, rickf@incommn.com

    Scott Foster, Partner, Bulkley, Richardson and Gelinas, LLP, 1500 Main Street, Suite 2700, P.O. Box 15507, Springfield, MA 01115-5507, sfoster@bulkley.com

    Audio Recording:

    Please take our survey to help us in planning future events.

    NOTES by Lynn Benander

    Securities laws say you’re either an accredited investor or a hopeless rube. Accredited investors either have a high annual income or they have a lot of assets. Securities laws assume people with a lot of money can do their own research on the investments and loans offered to them. They assume people without a lot of money can’t know if they have enough information or not. The Securities and Exchange Commission (SEC) is worried about people making an investment without all the facts.  If you have unaccredited investors, there are more strict reporting requirements (and these external reports are often cost prohibitive for local small businesses).

    We’re swimming upstream when we try to make it possible for unaccredited investors to invest in local small businesses.

    Securities laws in the US include federal securities laws and state blue sky laws. The State laws cover equity investments and loans that happen within a state’s boundaries.  The federal laws address equity and loans that include two or more states. 

    Securities are either registered or they are private placements. Private placements are friend and family investments from people you know. They are not advertised publically.

    Securities laws are constructed for corporate America and Wall Street.  If you add up all the investments in the US it’s about 30 trillion.  1% goes to local small businesses.  99% goes to large corporations and international corporations. 50% of all employment and 50% of the total value of the economy resides in local small businesses.  If you want to invest in the part of the economy that has the most immediate impact in your life, you have to grapple with these securities laws. 

    We’re looking at the laws and the opportunities to find ways to invest locally. Local investment often carries a high risk. Securities Laws have been created to control and reduce risk for small investors.

    There has been a lot of talk about Crowd Funding. There are two kinds:

    No Return Funding – Kickstarter and other tools like that are moving forward.

    Crowd Investing – The SEC was supposed to set up regulations to make this more possible, but it looks like it will be cost prohibitive.  It looks like people will only be allowed to invest $2,000 per year up to a $10,000 max. It’s just too expensive and not that useful to spend a lot of time raising a large number of very small loans.

    Cooperatives and Non-profits are exempt from registering under Securities Laws, so they do offer a useful way for people to make local investments.

    If you are interested in investing or in securing local investments, start with this question:

    What is your purpose for investing?  Are you investing out of social consciousness or to get a return to finance your retirement or your kids education?

    OPTIONS FOR LOCAL INVESTMENT

    In order to come up with local opportunities for investment, you have to hunt and peck.  It’s just not easy.

    • ·        If you want to invest locally in something that gives you a return, you might want to invest in Common Capital.  It gives loans to businesses in the local area.  It gives you a return on your investment.  It’s a great way to support local economy and local growth.  You’ll be doing good and getting something back. These loans are also exempt from securities laws because they’re a non-profit.

    • ·        You can join a cooperative. 

    • ·        You can invest in the Slow Growth sector – agriculture, food, small businesses and co-ops – where you’ll find great local small businesses to support and invest in.

    • ·        Investment Clubs are a great way to pool money, where you take small bits of money and invest as an entity.  You have to find people you agree with who have the same outcome goals. Once you do, you’re able to get around some of the barriers.  Local Investment Opportunity Networks give you opportunities to match up with small businesses in your area who are looking for neighbors to invest in.  These fit within the laws of Massachusetts and have intra-state exemptions.  Start a LION or work with one that already exists.

    • ·        The Eastern Bank of Mass has created CD’s that bank customers can selectively purchase. Those CD’s are dedicated to invest in local businesses in the Boston area.  You can ask your local banks to set up a CD program like that.  Banks are licensed to do this work.  They have banking regulations and don’t have to deal with securities laws for these offerings.

    • ·        Self Directed IRAs require a Trustee who makes your investment decisions.  There is a lot of paperwork required, mostly to protect the Trustee.  It will take you 30-45 days to set up.  The Trustee isn’t obligated to do the due diligence for you.  It’s still up to you.

    Who can provide financial planning support for local investments?

    Financial planners can charge you a fee or they collect a fee from whoever you invest in.  Unless an advisor has a lot of integrity, they sell investments that pay them. To find someone with integrity, you have to do a lot of research.  If you work as a group, you can get the advice from advisors on a volunteer basis.

    Questions to ask when you’re deciding whether to make a loan or investment in a local business

    It’s challenging to research an investment opportunity.  It takes months.  There are many things that need to be researched.  It makes sense for you to do this research as a group if you can.

    • 1.     What do you think your company is worth?  Do you have a professional valuation? 
    • 2.     Do you have audited financials? Audited financials don’t guarantee there isn’t fraud.  It just means if there is fraud, it wasn’t obvious enough for an auditor to catch in an audit.
    • 3.     Do you have interns? How much do you pay them? If you’re a for-profit business, you can’t have people helping you out that you’re not paying.  You can have college credits that are getting credit for working for you.
    • 4.     Are you paid up with all of your payroll and payroll taxes? If not, the business has big penalties.
    • 5.     Have you had an environmental study?  If there are any environmental clean up problems, you can lose everything in a blink of an eye.  If they are involved in a business that could have environmental problems, and they say no, walk away.
    • 6.     How strong is your management team?  What happens if you can’t work for any reason?  Do you have a succession plan?
    • 7.     Who are your employees?  Can we depend on them continuing? Can we recruit new people easily for positions that open up?

    It’s important to ask the questions above first before you dig into the terms of the loan or equity offering.

    • 1.     Are you offering a loan or equity investment?
    • 2.     If it’s a loan,
    • a.     What other debt the business already has.  If there is bank debt, the bank debt comes first. At any time the bank can make the business owner stop paying on other debt. 
    • b.     Are you going to personally guarantee the debt if the company can’t pay it?  If yes, “What is your personal financial statement?” and you need to make sure the owner has assets that can cover your loan.
    • c.      What will you pay me and when.  In the amortization mode you get a lot of interest up front and a fixed payment.  You can also get a fixed principal payment plus interest.
    • 3.     If it’s an equity investment,
    • a.     What are the terms?
    • b.     What’s my exit strategy?  Can I force an exit?
    • c.      Do I get a seat on the board of directors?

    Facilitator:  Scott Reed, Invest Here Now (invest-here-now.org), sreed@avacoda.com

    Notes: Lynn Benander

  • 25 Apr 2013 4:56 PM | Scott Reed

    Some Technical Details: Checkbook IRAs start out like any other IRA with a bank account owned by the IRA custodian and managed in your name. The custodian then creates the LLC and appoints you as an officer or "Investment Manager" who can execute contracts for the LLC. Technically, your IRA makes a single investment by purchasing shares in the LLC. That investment provides the funds that the LLC will invest on your behalf. As the manager of the LLC you open a bank account (at any bank you want) in the name of the LLC and  deposit the money your IRA account invested in the LLC. Now you have effectively set your IRA funds free of the IRA custodian and basically investing you're on your own. (But see the warning below.)
     
    Warning: The main drawback of a checkbook IRA is that along with the freedom it offers comes great responsibility. If you misstep and purchase something through the IRA checking account that is not an IRS approved investment, the penalties are very high. Be sure you are familiar with the regulations on prohibited transactions and disqualified persons.
     
    Final Warning: Some lawyers and IRA custodians warn against checkbook IRAs, claiming the arrangement has not been approved by the IRS and that you may be risking huge penalties, if you go this route. The checkbook IRA custodians and others cite case law (Swanson v. Commissioner, 106 T.C. 76 (1996) plus more recent cases) that they interpret as establishing the legality of the practice and IRS's acceptance of it.
    A "checkbook IRA" is a self-directed IRA that allows you (rather then your IRA custodian) to sign your IRA's investment agreements and invest your IRA funds from a checkbook. Checkbook IRAs allow for very rapid transaction times, lower fees and less paperwork.

    The arrangement is claimed to be legal because the IRA custodian creates an independent Limited Liability Corporation (LLC) which is owned by the IRA custodian and whose purpose is to manage your investments. The trick is that the IRA custodian appoints you as the manager of this LLC. Since you do not own the LLC and are not an employee of the LLC, the checkbook IRA custodians claim you are allowed to invest in the LLC and you are allowed to manage it. (But see Final Warning Note side bar below.)

    The set up costs for this are much higher than for other self-directed IRAs but it greatly simplifies the custodian's administrative work so they charge lower annual fees and usually have no transaction fees.

    Here are two self-directed IRA custodians, Guidant Financial and IRA Club, that offer checkbook IRAs. I reviewed Guidant because Michael Shuman mentioned them in his book, Local Dollars, Local Sense, and I reviewed IRA Club because it has relatively low start up fees.

    Guidant Financial

    Guidant appears to have eliminated most of the fees other than a $105 annual fee (no matter how much you have in your account) and the annual filing fees for an LLC in your state. They charge a set up fee of $2500-$3800 and then just the flat-rate annual fee. No transaction fees to buy and sell assets or loans. The setup fees depends on your state's LLC set up fees and the consultant handling your account (i.e. you may be able to negotiate a set up fee at the lower end of the range).

    I was told by a Guidant rep that the annual filing fee for an LLC in Massachusetts is $500 and that Guidant pays $200 and you pay $300.

    I do not recommend Guidant because they do not publish their fees or their forms and documents so I cannot evaluate their product. Their lack of transparency itself is a red flag for me.

    IRA Club

    IRA Club's basic fee structure is available on their web site. At the time of this writing their normal $1850 set up fee is just $1295 and their annual fee is $220.

    If we amortize the set up fee ($1850) over ten years, we'd have an effective annual fee of $405. For a $50,000 account that's .8% a year but for a $10,000 account it's 4% a year,  so this type of IRA only makes sense if you 're investing a goodly sum. Their minimum starting amount is $20,000.

  • 12 Jan 2013 4:58 PM | Scott Reed

    Here is an IRA custodian that's into local investing (locavesting): New Direction IRA

    Here's info about their fees (download full fee schedule):

    Option One: Per Asset, $295/year
    • Cost effective for fewer investments with high values
    • Flat rate fee per asset regardless of asset value
    Option Two: Valued Based Fees, $195+/year
    • Cost effective for more investments with smaller values
    • Based on total value of assets
    • (Cash not counted)
    Simple Fees Breakdown:
    • $50 Application Fee (one-time)
    • $95 Transaction Fee (per purchase/sale/exchange of any asset except real estate)
    • $30 Bank Wires (one-time)
    • $30 Overnight mail (one-time)
    • Annual fees start at $195/year
    Simple Fees Breakdown: Lend $50,000 to a third party securing the note with real estate
    • $50 Application Fee (one-time)
    • $95 Transaction Fee (one-time per purchase/sale/exchange of any asset except real estate)
    • $295 Flat Annual Fee for ongoing administration (Using Option #1)
    • Approximate First Year Total Fees: $440
    • Approximate Following Years: $295
    • Total first year expenses: ~1%
    • Total following year expenses: ~.6%
    Simple Fees Breakdown: Purchase shares of a private company for $10,000
    • $50 Application Fee (one-time)
    • $95 Transaction Fee (one-time per purchase/sale/exchange of any asset except real estate)
    • $195/year Annual Fee for ongoing administration (Using Option #2)
    • Approximate First Year Total Fees: $340
    • Approximate Following Years: $195
    • Total first year expenses: 3%
    • Total following year expenses: ~2%

  • 07 Jan 2013 4:54 PM | Scott Reed

    Many of us have individual retirement accounts (IRAs) which we use to invest retirement savings in mutual funds, stocks and bonds with tax-deferred or tax free investment income. If you’re like me, you probably think that’s all you can do with an IRA. However, we learned at the Co-op Power summit in July, 2012, that we have many other options for investing our IRA funds, including lending retirement savings to local businesses like Northeast Biodiesel, Energia or Co-op Power or to local community finance institutions like Common Capital, Cooperative Fund of New England or Equity Trust Fund. We learned that certain IRA custodians allow investments to be directed by us rather than a mutual fund manager.

    How Does It Work?
    After the summit I did some research and found a couple of self-directed IRA custodians on the web. Two examples are the Entrust Group and PENSCO. These companies offer seminars, webinars and online tutorials in managing a self-directed IRA, though they emphasize investments in real estate and precious metals more than business loans or stock purchases (private placements).

    The simplest mechanism for investing in a local business is a “promissory note” which spells out the details of the loan your IRA makes to the business. In most cases, the loan will not be secured by any of the business’ assets and it will likely be subordinate to loans the business may have taken out from banks, so this is a very risky form of investment. You need to be diligent in vetting the business before entering into such an arrangement.

    Once you open a self-directed IRA and move some of your retirement funds into it, you instruct the custodian to pay out funds for whatever purposes you wish (as long as you are not an immediate beneficiary of the loan or investment). The custodian will supply you with forms to direct the payment (and indemnify themselves in case the investment fails). If you are making a loan I strongly recommend getting a lawyer to draft the promissory note or review the note provided by the borrower. The holder of the note will be the custodian of your IRA, not you, personally.

    Fees
    The critical differentiators for IRA custodians are support services and fees. PENSCO’s fees are charged quarterly and appear to be higher than the Entrust Group’s fees.

    Here are the Entrust Group fees (charged annually):
    Annual Fee
    Option 1: Based on Number of Assets: $295 per Asset
    $295 per asset and/or liability, per year, paid at the time of acquisition. Please note that debt financing on an asset is charged as an additional asset. For example, 1 investment is $295 per year, 6 investments are $1,770 per year.

    Option 2: Based on Total Account/Asset Value (Min. $195, Max. $1,995)
    If the account value is between Multiply value by
    $1 and $24,999 0.0095 (minimum fee $195)
    $25,000 and $49,999 0.0070
    $50,000 and $149,999 0.0065
    $150,000 and $299,999 0.0060
    $300,000 and up $1,995
    For example, if the account value is $20,000, the annual administration fee would be $195. If account value is $55,000, the annual record keeping fee would be $444.99.

    Administrative, Transaction and Termination Fees
    There are also nominal administrative, transaction and termination fees.

    In Entrust Group’s option 1, we’d pay $295 per year for each asset we invest in, so that would only work for very valuable assets ($295 is 3% of a $10,000 investment but .3% of a $100,000 investment).

    Their option 2 is more reasonable for small investors like me. Under option 2, we’d pay about 1% a year for all the assets in our account together as long as we they are valued $20,500 or more and the fee goes down as our account value increases. For comparison, Vanguard mutual funds, which are considered to have some of the lowest fees, charge an average of .2% per year.

    Equity Trust Company

    I also have been looking at Equity Trust Company which is a more barebones operation with somewhat lower fees. They charge a one-time $50 set up fee and their annual fees are:

    $0-14,999 $190.00
    $15,000-24,999 $260.00
    $25,000-49,999 $300.00
    $50,000-99,999 $360.00
    $100,000-199,999 $440.00
    $200,000-299,999 $600.00
    $300,000-399,999 $640.00
    $400,000-499,999 $920.00
    $500,000-599,999 $1,500.00
    $600,000-699,999 $1,600.00
    $700,000-799,999 $1,700.00
    $800,000-899,999 $1,750.00
    $900,000-999,999 $1,800.00
    $1,000,000-OVER Negotiable

    This is about 1/3 the rate that Entrust Group charges. They explain their fees here: http://www.trustetc.com/company/fees.html#fee and their “special fees” like termination fees are listed here: http://www.trustetc.com/company/special-fees.html. Equity Trust Company has a slide show that explains how you invest the money in your fund which I found very helpful.

    [Note: Do not confuse Equity Trust Group with Equity Trust Incorporated, the non-profit in Turners Falls (of which I am a board member) that preserves farmland affordability and operates a loan fund (and local investment opportunity) to support that work.]

    Update (11/19/2014): Since I wrote this, the folks at Stakeholders Capital told me about IRA Services Trust which has a flat rate fee schedule and appears to be more affordable, especially for lower wealth investors.

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