The Ultimate Guide To Credit Union Business Loans
Credit unions are growing in popularity because of their competitive interest rates and excellent customer service. Before you apply, here's everything you need to know about credit union business loans.
Offering many of the same services as traditional banks, credit unions are becoming the go-to resources for business owners. Some of the best small business loans can be found at credit unions. But is a credit union business loan right for you?
In this post, we’re going to break down credit union business loans. From how to become a member to applying for funding, this guide covers it all. Keep reading to find out if a loan from a credit union is a smart financial choice for your business.
Table of Contents
- What Are Credit Unions?
- Types Of Credit Unions
- Types Of Business Loans Offered By Credit Unions
- The Pros & Cons Of Credit Union Business Loans
- How To Join A Credit Union
- 8 Credit Unions That Anyone Can Join
- Borrower Requirements For Credit Union Business Loans
- What Interest Rates Can I Expect From A Credit Union?
- How To Apply For A Business Loan From A Credit Union
- FAQs About Business Loans From Credit Unions
- The Bottom Line On Credit Union Business Loans
What Are Credit Unions?
Before taking out a business loan from a credit union, it’s important to understand how credit unions work. Although they appear to work in similar ways as banks, there are big differences between the two. Unlike banks, which operate for profit, credit unions are nonprofit cooperatives.
Because the account holders at a credit union are also technically the owners, they are members, not customers. Any profit a credit union makes is reinvested or given as a dividend to its members. As nonprofit organizations, credit unions do not have to pay taxes, so they can offer extremely competitive interest rates to members.
Credit unions offer many of the same financial services as banks, including business and personal checking and savings accounts, vehicle loans, personal and business credit cards, mortgages, and business loans.
Types Of Credit Unions
There are several different types of credit unions to consider for small business loans. Those include:
- Federal Credit Unions: These credit unions are regulated by the National Credit Union Administration and are insured by the National Credit Union Share Insurance Fund (NCUSIF).
- Federally Insured State Credit Unions: The NCUSIF insures these credit unions.
Additionally, credit unions can also be categorized based on membership type. Credit unions fall into the following categories:
- Community Credit Unions: These credit unions serve members that live, work, or worship within a specific community.
- Educational Credit Unions: These institutions provide services to alumni and employees of specific schools.
- Military Credit Unions: Members of the military and veterans receive financial services through this type of credit union.
- Associational Credit Unions: Associational credit unions offer membership to members of an association, such as faith-based groups, social organizations, and fraternal organizations.
- Manufacturing Industry Credit Unions: These credit unions offer memberships to employees in the manufacturing industry.
- Service Industry Credit Unions: Membership is open to individuals who work in the service industry, such as the healthcare and finance industries.
- Government Credit Unions: These credit unions provide financial services to federal, state, and/or local government employees.
- Corporate Credit Unions: Corporate credit unions are larger institutions that provide financial services to other credit unions.
- Non-Federal Credit Unions: Also known as state-chartered credit unions, deposits at these institutions are covered by private insurers but not the federal government.
- Multiple Common Bond Credit Unions: These credit unions are chartered to serve multiple groups, such as two unrelated associations.
Types Of Business Loans Offered By Credit Unions
Like banks and other lenders, credit unions offer a variety of different loan options targeted at businesses. Since each credit union business loan comes with its own set of requirements, terms, and limitations, understanding the available financing options out there will be beneficial for business owners seeking a loan that fits their own unique needs.
The Pros & Cons Of Credit Union Business Loans
- Low interest rates for qualified borrowers
- Excellent customer service
- Loans available to businesses with less-than-perfect credit
- Startup loans available
- Loan options for nonprofits
- Limited lending services available
- Members may not be apply to apply for a business loan right away
- Loans may not be available to very bad/limited credit borrowers
Before choosing a credit union for your small business funding needs, make sure to weigh out the pros and cons.
The Advantages Of Credit Union Business Loans
Here’s why you should consider using a credit union for your business funding.
The Disadvantages Of Credit Union Business Loans
While there are many benefits to borrowing from a credit union, there are a few potential drawbacks worth noting.
How To Join A Credit Union
Credit union account holders are members — not customers — so joining one of these institutions looks a little different than signing up for a bank account.
To become a member, you must meet certain membership requirements. Consumers and business owners can be eligible to join a credit union through:
- Employers or industries
- Military affiliation
- Alumni associations
- Religious institutions
- Geographic location
- Family members
- Other group memberships, including labor unions and homeowners associations
If you don’t meet these requirements, some credit unions allow members to join through other means, like making a small one-time donation to charity.
Once you’ve identified the credit union you want to join, you’ll fill out an application to open a checking and/or savings account. This process is similar to opening a traditional bank account. Upon approval of your application, you’ll be required to make a deposit to open the account.
After you’ve successfully joined the credit union, you are now eligible to apply for additional financial services, including personal and business loans.
8 Credit Unions That Anyone Can Join
Many credit unions have business loans. But some of these institutions have very specific requirements that must be met in order to join.
These eight options are open to the public and have minimal membership requirements.
Borrower Requirements For Credit Union Business Loans
Borrower requirements for credit union business loans vary based on the lender’s policies, the borrowing amount, and the type of loan you’re applying for.
In general, borrowers should have a business that has been in operation for at least two years, steady revenue, a good to excellent personal credit score, and a solid credit history.
Options may be available for newer businesses, seasonal businesses, and borrowers with credit challenges. However, it’s worth noting that the lowest rates and best payment terms are reserved for borrowers deemed as the lowest risk.
Depending on the loan selected and the borrower’s credit history, collateral may be required to secure the loan.
What Interest Rates Can I Expect From A Credit Union?
Like banks and other lenders, credit unions offer different interest rates to their members based on a number of factors, including but not limited to the type of loan, the loan amount, and the borrower’s creditworthiness.
In general, credit union members should expect to pay interest rates that are competitive with banks, and in many cases, even lower. The most qualified, low-risk borrowers will receive the lowest rates. For SBA loans, credit unions base their interest rates on the standards set by the SBA, which are extremely competitive.
Interest rates also vary by the type of loan selected. For instance, installment loans will almost always have lower rates than other types of financing, such as lines of credit or credit cards.
How To Apply For A Business Loan From A Credit Union
While the application process and requirements vary by lender, here’s a general overview of what to expect when applying for a business loan through a credit union.
FAQs About Business Loans From Credit Unions
The Bottom Line On Credit Union Business Loans
In addition to offering checking and savings accounts for business owners, credit unions can provide affordable loan options for small business expenses. With personalized customer service and low-interest rates available to credit union members, any business owner seeking a competitive loan should consider a credit union business loan.