The Ultimate Guide To Credit Union Business Loans

Installment loans (also called term loans) provide borrowers with a specific lump sum of money. Installment loans are best for larger purchases, such as long-term equipment, allowing businesses to purchase assets without paying the full amount upfront.

Installment loans from credit unions typically have high borrowing limits of $50,000 or higher, depending on the institution’s lending policies.

Regular payments are made by the borrower on a scheduled basis, which is typically every month on the same day. This payment is applied to the principal amount (the amount borrowed) and the interest charged by the credit union. Interest rates on these loans vary and are primarily determined by creditworthiness. Smaller installment loans may be paid off within a few months, while larger loans may be paid over several years.

For larger installment loans, collateral from the borrower is typically required, although policies vary by lender. Collateral may include business assets and/or personal assets.

A business line of credit from a credit union is very similar to a credit card. A line of credit is a flexible form of funding that can be used for any business expense, including working capital, inventory, supplies, or emergencies.

A credit union assigns a credit limit to the line of credit. Multiple draws can be made on the line of credit provided it doesn’t exceed this credit limit.

Since lines of credit are considered a bigger risk, interest rates may be higher than other financial products. Interest is only applied to the portion of the credit line that the borrower has used.

The application process for a line of credit is typically easy. Credit requirements are often not as strict as with installment loans. In most cases, collateral is not required. However, borrowers with bad credit and other high-risk borrowers may be required to pay a security deposit or put up collateral before accessing the line of credit.

Credit unions also provide Small Business Administration loans. These loans are backed by the SBA, taking the risk off of lenders like credit unions. For business owners, this means easier access to long-term loans with low interest rates.

The SBA loan application process is long and difficult, but businesses with strong credit histories and solid revenue will be rewarded with some of the most competitive rates in the lending industry.

There are several SBA loan programs available, including:

• SBA 7(a) Loans: This program provides up to $5 million for almost any business expense.
• SBA CDC/504 Loans: Under this program, a borrower works with a Certified Development Company (CDC) and a private lender (such as a credit union) to fund commercial real estate improvements or purchases.

The types of loans available and borrowing requirements vary by credit union.

New businesses and startups are viewed as risky borrowers, often making it difficult to find funding.

Fortunately, startup loans are available through some credit unions. Some credit unions have their own loan programs, while others provide SBA loans to qualified startups. Another option is to get a personal loan for business expenses through a credit union.

Because startups and new businesses won’t have the typical documentation required for a business loan, additional requirements may need to be met to receive a loan.

Business Credit Cards

Many credit unions offer business credit cards to qualified business owners. A business credit card works just like a personal credit card but can be used by business owners and other named cardholders for business expenses.

Business credit cards come with a maximum credit limit. Borrowers can spend up to this limit at any location where major credit cards are accepted. Interest rates are applied against the balance of current charges, not against the entire line of credit. Monthly payments are used to pay off the balance, plus the interest. As the balance is paid down, the funds again become available for use by the borrower.

Credit card interest rates through credit unions are competitive with those of other lenders. However, rates may be higher for credit cards than you’ll see with other financing options (such as installment loans or traditional lines of credit).

Many credit unions offer commercial mortgages that can be used to purchase commercial real estate or fund improvements to expand a business.

These loans have competitive down payment requirements and interest rates. In addition to offering their own programs, credit unions may also offer 504 or 7(a) SBA loans that can be used toward commercial real estate. Rates, terms, and requirements vary by lender.

One of the biggest benefits of getting a loan from a credit union is the very low-interest rates for qualified borrowers.

Because credit unions are nonprofit organizations, they do not have to pay state and federal taxes. This allows these financial institutions to offer extremely competitive interest rates to their members, often beating out the rates offered by banks.

Another benefit is that credit union account holders are seen as members and not just as customers. Because of this, there’s usually better customer service, and the institution may be more flexible and willing to accommodate its members when it comes to lending policies.

Because credit unions have more flexibility and closer relationships with their customers, it may be easier for new businesses, startups, and business owners with lower credit scores to qualify for funding opportunities.

Some lenders won’t loan money to nonprofit organizations. Fortunately, many credit unions have funding options for nonprofits.

One of the biggest drawbacks of getting a loan from a credit union is actually finding one that offers the lending services that are needed.

Credit unions are often very small and have limited business lending services. You may qualify for membership, but a credit union may not offer the loan you want, such as a commercial mortgage or SBA loan. Not all credit unions are the same, and each has its own lending programs and policies in place.

Some credit unions set certain requirements before a member can apply for a loan. This could include building up a savings account or being a member for a set period. This could be an issue for businesses that need funding fast.

Working with a credit union may be easier than getting a loan from a bank, but some loans still have limitations. Borrowers with very low/limited credit or low revenues may encounter challenges when applying for credit union business loans.

If this occurs, you can consider other options through the credit union or explore additional small business loan options from alternative lenders.

If you don’t meet other membership requirements, you can become a member of Alliant Credit Union by donating to Foster Care to Success. This charity provides support to teenagers aging out of the foster care system.

The Chicago-based Alliant Credit Union offers a variety of financial products online. You can also withdraw or deposit funds through one of Alliant’s over 80,000 surcharge-free ATMs located nationwide.

There are several ways to join the Pennsylvania-based American Heritage Credit Union. If you don’t meet other requirements, you can make a small donation to the Kids-N-Hope Foundation, a charity that funds the Music Therapy Program at the Children’s Hospital of Philadelphia.

American Heritage branches can be found throughout the state of Pennsylvania.

One way you can join Connexus Credit Union is with a one-time $5 donation to the Connexus Association, which provides financial education resources and scholarships to business and education students.

Connexus offers online services, over 5,000 shared branches, and over 54,000 ATMs throughout the nation.

If you don’t meet other membership requirements, you can join GTE Financial by paying a one-time $10 membership fee to CU Savers, the institution’s nonprofit educational financial club.

While GTE is based in Florida, many of its services can be accessed nationwide through its website, shared branches, and fee-free ATMs.

You can become a member of Hughes Federal Credit Union with a one-time $10 donation to one of several community organizations, including Friends of the Oro Valley Library and Friends of the Pima County Library.

This institution was formed in Tucson, Arizona, but has branches, shared branches, and surcharge-free ATMs nationwide to serve its members.

You can qualify for membership with NASA Federal Credit Union by becoming a member of the National Space Society. Upon signing up, you’ll receive a complimentary one-year membership to the NSS as well as access to financial products and services.

This institution has branches, shared branches, and ATMs across the US.

If you aren’t a Department of State employee, you may still be eligible to apply for an account through State Department Federal Credit Union. You may also apply for group membership, apply as an employee of an affiliated organization, or join the American Consumer Council.

This institution has over 5,600 shared branches in all 50 states, as well as nearly 30,000 surcharge-free ATMs.

With over 320,000 members, Teachers Federal Credit Union is one of the nation’s largest credit unions. Anyone can become a member of TFCU. Membership costs just $1.

After joining, you’ll receive access to online banking services and a nationwide network of branches and ATMs.

The first step to applying for a business loan from a credit union is to determine if you qualify. Before you do this, you’ll need to make decisions on:

• Borrowing amount
• How the loan will be used
• Loan type

Once you’ve narrowed down your options, do your research to find out borrowing requirements. You can do this by going to a local branch or visiting your credit union website.

You’ll also need to gather documentation to prove you meet all requirements (more on this later) and check your credit score and credit report. If you don’t meet credit requirements, consider another type of loan, browse other lenders, or take steps to improve your credit.

After selecting your loan and determining that you may qualify, the next step is to fill out a loan application. You may have to visit a credit union branch, but many institutions now offer online applications.

Applications vary by lender, but generally, you’ll need to provide:

• Personal contact information
• Social Security Number
• EIN
• Business contact information
• Revenue
• Time in business
• Borrowing amount
• Loan purpose

You may be required to provide documentation to your lender based on the type of loan, borrowing amount, and other factors. These requirements vary, but here are common documentation requirements:

• Business licenses
• Articles of incorporation
• Profit and loss statements
• Personal and business financial statements
• Balance sheets
• Income tax returns

The credit reports of the business and any owner of at least 20% of the company will be required to determine loan eligibility and interest rates.

If the business is seeking a loan to purchase real estate or improve existing facilities, items like vendor and contractor quotes and purchase agreements may also need to be provided.

New businesses and startups may not have all the required documentation. If this is the case, credit unions may require:

• A solid business plan
• Proof of industry experience
• Financial projections for at least 12 months

For most loans, a personal guarantee by all owners with at least a 20% stake in the company is required. This simply means that if the loan goes into default, the business owners will be held personally liable for the debt.

Collateral may be required instead of or in addition to a personal guarantee. Collateral is usually in the form of business assets, but in some cases, personal assets may be used as well.

Once you have everything together, you can submit your application to the lender.

After submitting your application and documentation, it’s important to follow up with your lender. During the approval process, you may need to provide additional information or documentation or answer questions posed by the lender.

Make sure that you follow up promptly on all emails and phone calls to prevent delays in receiving your funds.

After submitting all documentation and an application, the credit union will make an approval decision. If approved, the underwriting process will begin, and the loan will be funded.

The length of the entire process depends on the type of loan selected. For example, a line of credit or credit card may be approved and used within days, while an installment loan, commercial mortgage, or SBA loan may take several weeks or months from start to finish.