BEDFORD, Ind. — The $313 million Hoosier Hills Credit Union found that loaning another cooperative money has paid a variety of different dividends.

Two years ago, Hoosier Hills stepped forward to partner with a cooperative development organization and provide a $336,000 loan to the Lost River Market and Deli, a new grocery and restaurant cooperative which opened in the nearby town of Paoli, the largest town in one of Indiana's counties with the lowest income. Hoosier Hills is the lead lender on the loan but a participation from the National Consumer Cooperative Bank meant that only 50% of the loan remained on the CU's books.

According to statistics from the state, Orange County had Indiana's second highest unemployment rate and the lowest average household income in 2004. The county's industrial base has been farming and some light industry and it ranks in the bottom 25% in terms of adult education.

So when a group of residents from Orange county and surrounding counties approached the credit union with a plan to start a food cooperative in Paoli that would compete with both an established supermarket and a Wal-Mart Super Center, credit union executives were skeptical, according to Steven Hawkins, Hoosier Hills senior vice president of lending.

“I think there was a level of concern about it being a grocery when there were already some established food stores there,” Hawkins said. “We were also concerned about it being a cooperative in the sense that a cooperative doesn't have any individual guarantors of the loan and of course we like to see those,” he added.

Individual cooperative board members could not guarantee the loan, Hawkins explained, only the cooperative itself which was, after all, a start up business. The credit union had been doing member business lending for about eight years and, according to NCUA records, the CU had 411 member business loans worth approximately $37 million on its books at roughly the same time it was considering making the loan.

There was also a level of concern about the willingness of a lower income community to back a cooperative grocery committed to selling what might seem like higher cost food. To try to keep Lost River attractive to as large a segment of the community as possible, the cooperative has introduced member coupons and made sure that the inventory reflected more standard food brands in addition to the locally grown or raised and organic fare.

“When we first heard about the project we weren't sure we wanted to be involved in a grocery store,” remarked Doug Pittman, senior commercial lender for the CU. “But then you meet the people and see how dedicated they are to this project…Plus, it just makes good sense: one co-op helping another co-op.”

On the plus side, Lost River's organizers had a strong vision for what they wanted to form and experience with supplying the sort of food that they believed the people in Orange and surrounding counties wanted and would pay for, according to executives with credit union and Lost River.

“The cooperative got underway when a group of people who had already formed a local farmers' market, Orange County Homegrown, had an idea that there was enough interest to make something permanent from it,” explained Brad Alstrom, general manager of the grocery and restaurant. “The existence and growth they had seen in the market and the interest on the part of both consumers and producers helped them see the co-op as real alternative,” Alstrom said.

Lost River opened its doors in late October 2007 and almost immediately saw that vision put to the test only two months later as the JayC Supermarket in Paoli announced it was pulling out. JayC is a branch of the Kroger supermarket chain and operates five stores in Indiana, according to the company. The departure of the store left residents of Paoli with a Wal-Mart Super Center as their only source of groceries unless they wanted to drive an hour in any direction, Alstrom said.

“Not only did we offer a different, fresher and healthier source of food than Wal-Mart,” Alstrom said. “We now became the only other reasonable alternative for a place to shop.”

Since it started actively recruiting new members about a year ago, Alstrom reported Lost River had signed up its 500th member, a landmark. Members agree to allow only members of their household to shop at the cooperative on their membership for a one-time fee of $90, refundable should they decide to leave. The cooperative also recently saw 75 of its members show up for its second annual membership meeting where, among other things, they established a scholarship fund to help provide memberships to lower income residents and collected money to help fund it.

One thing that Hoosier Hills and Lost River have not discussed is an arrangement through which members of Lost River could become eligible to join the credit union. Alstrom explained that Lost River would be open to such an arrangement, but Hawkins said Hoosier Hills had not focused on the question because Orange County was already part of the CU's community field of membership.

–[email protected]