For the longest time, most entrepreneurs have turned to traditional banks when it comes to their business loan needs. However, recent statistics show that more and more Americans are switching to credit union business loans—and for a good reason. Read on to find out if it’s the right option for you.
What Is a Credit Union?
Before we break down credit union business loans, let’s talk about credit unions first. For the most part, these financial institutions offer similar products and services as traditional banks, i.e. savings and checking accounts, mortgage loans, business credit cards, etc. However, they are member-owned and operate as a non-profit organization, meaning they are not required to pay taxes, and all revenue goes back to their operations.
But membership is subjected to eligibility requirements or what they refer to as a “field of membership.” Here are a few ways you can become part of a credit union:
- If you work for a company that sponsors a credit union
- If your family member is part of a credit union
- If you live, work, worship, or go to school at a certain geographic location that the credit union services
- If you’re a member of a particular group or association that a credit union services, i.e. religious institutions, labor unions, and homeowners’ associations
How to Apply for a Credit Union Business Loan
The requirements will vary depending on your chosen credit union, but here are some documents that you might need to prepare:
- Articles of incorporation
- Business license
- Statement of profit and loss
- Personal and business financial statements
- Income tax return
- Statement of assets and liabilities
Before sending in your application, be sure to do your research first. If you can, reach out to the lender, or visit their website to acquire a complete list of requirements. While you’re at it, you can also bring up any clarifications you may have regarding the application process. This way, you can save time and avoid further delays.
Where to Apply for One
As long as you meet eligibility requirements, you can apply for a business loan from one of these credit unions. Read on to find out which one you fall under.
- Federal Credit Unions – they are regulated by the National Credit Union Administration (NCUA) and insured by the National Credit Union Share Insurance Fund (NCUSIF).
- Federally-Insured State Credit Unions – they are insured by the NCUSIF.
- Community Credit Unions – they service members who live, work, or worship within a specific community, neighborhood, or rural district.
- Associational Credit Unions – they offer services to members of associations like religious institutions, social organizations, and fraternity groups.
- Military Credit Unions – they offer financial services to military members and veterans.
- Educational Credit Unions – they service alumni and employees of partner schools.
- Manufacturing Industry Credit Unions – they cover industries such as chemicals and machinery.
- Service Industry Credit Unions – they cover industries such as finance, health care, and transportation.
- Corporate Credit Unions – also known as central credit unions; they provide financial services to other credit unions.
- Government Credit Unions – they offer services to federal, state, and local government employees.
- Multiple Common Bond Credit Unions – provides services to multiple groups that have common occupational or associational bonds.
- Non-Federal Credit Unions – also known as state-chartered credit unions, these are insured by private companies.
Different Types of Credit Union Business Loans
There are different loan options you can explore depending on your financial needs. Here are some of them:
- Installment Loan – with this type of loan, the credit union lends you a specific amount of money that needs to be paid on a monthly basis. Repayment terms can last anywhere from a few months to 20 years or more.
- Lines of Credit – this works similarly to a credit card where the borrower is given a credit limit. It can be used for different purposes including purchasing inventory and covering emergency expenses.
- Small Business Administration (SBA) Loans – the SBA partners with lenders like credit unions to provide financial assistance to small businesses. But these loans are more difficult to apply for due to strict requirements.
- Startup Loans – starting businesses or those that have only operated for a few months can apply for this loan.
- Business Credit Cards – works similarly to personal credit cards, however, they can only be used for business purposes.
Compared to traditional bank loans, credit unions business loans have lower fees, more competitive interest rates, and less stringent requirements. If this sounds good to you, then consider applying for one now. If it’s your first time applying for financing, don’t hesitate to reach out to financial advisors. Doing so can help you find a loan that will work best for your business goals.