Recall that a cooperative is initiated by a group of people who share a mutual need, and who start a business designed to meet that need. In order to cover the co-op's start-up costs, each member of the group contributes some money (often in the form of capital stock). The money that members invest in the co-op is known as member equity.

Member equity represents the members ownership interests in the assets of the company. As risk capital, it is subject to loss. Member equity is used to purchase equipment, supplies, inventory, and any other assets the co-op needs to get up and running.

If the members of a co-op are unable to generate sufficient funds to cover all of the assets needed, they usually seek a loan. Although co-ops can borrow money from the same lending institutions as other businesses, many co-ops have found that it is helpful to approach a bank that is familiar with cooperatives. Most banks require that the members contribute at least 50% of the total funds needed by the co-op. Members should have a financial stake in the cooperative, evidenced by their investment in it.

Owners, as providers of equity capital, take the business risks and enjoy the profits of their success; they should be the major contributors of capital. The level of equity invested by the owners signals to the banker the commitment of the owners to both the concept and the company.

"The inescapable axiom is that control follows ownership. (Members) must provide risk capital if they are to control their cooperative organizations. If others...put in risk capital, then they gain the right to influence and possibly control the organization and claim (its) benefits."
Randall Torgerson Rural Business-Cooperative Service, USDA

Thus, in most cases, a new co-op starts with some combination of equity from its members and debt from a lending its members and debt from a lending institution. Member equity, however, is the primary source of a co-op's financial stability.