The 2020 Comprehensive Guide to Credit Union Small Business Loans
Entrepreneurs are more enthusiastic than ever about credit unions. More than 120 million Americans now belong to credit unions, and membership is growing, according to the Credit Union National Association. Credit unions are not-for-profit and member-owned and, as such, can often offer lower rates than traditional banks.
Getting a business loan from a credit union is a great option to consider thanks to their high approval rates, especially when alternative lenders can vary in quality and traditional banks can have strict application requirements. We’re going to cover everything you should know about credit union business loans, including where to get them, so you can decide whether they’re right for your business.
What Is a Credit Union?
A credit union is similar to your traditional bank but it has a few distinct differences that make it extraordinary. First, credit unions are member-owned cooperatives that operate as not-for-profit financial institutions, meaning all the money they earn goes back into their operations. Because they aren’t for-profit, like traditional banks, they can typically offer higher interest rates on checking and savings accounts, lower interest rates on loans, low fees, and exceptional customer service.
How Do Credit Union Business Loans Work?
Credit union business loans and credit union short-term loans work just like business loans from a bank. Keep in mind that it’s generally no easier to get business loans from a credit union than a bank, as the approval criteria are similar. Whether you go to a credit union or one of the best banks for business loans, you typically need to have a profitable business, at least two years of financial history, and a good credit score to qualify for financing.
How Do I Become a Credit Union Member?
Not everyone can become a member of a credit union because they have some particular requirements for membership. Members of a credit union usually all have something in common, like an employer. This is also sometimes called the “field of membership” for the credit union.
You may be able to join a credit union based on the following:
Many employers sponsor their own credit unions, so if you work for a company or organization with their own credit union, you could be eligible to join as an employee.
The majority of credit unions allow their members’ families to join as well.
Many credit unions serve people that live, work, worship, or attend school in a specified geographic area.
Membership in a Group
Membership in a group or association such as a school, labor union, homeowners’ association, or place of worship could make you eligible to join a credit union.
Credit Union Small Business Loans vs. Bank Small Business Loans
The key difference between credit unions and banks is that banks aim to maximize profits, which are then distributed to shareholders. In contrast, credit unions exist to serve their members. Earnings of credit unions are used to increase rates of return on members’ deposits and savings accounts, and to decrease rates on loans made to members. This is why credit unions can offer such competitive rates on their products, and why so many people are members.
However, while entrepreneurs who need business loans should certainly consider a credit union, there are also some disadvantages to factor in:
On average, credit unions hold fewer assets than banks. This means they have less money to spend on technological enhancements like apps and web portals.
As a result, credit unions, especially smaller ones, may not offer mobile banking or mobile deposits that allow you to access banking services from your smartphone or tablet. This can be a big disadvantage for business owners on the go.
That’s not to say that no credit unions provide online access—many do. However, if this is important to your business, you’ll want to make sure the credit union you’re looking into has the technology to support your needs.
While some business owners prefer mobile banking, others prefer in-person transactions. Unlike the big banks, there’s not going to be a branch of your credit union on every street corner.
However, to serve more members, a good number of credit unions participate in a shared ATM and a branch network. This is another good thing to ask your potential credit union about to make sure you’ll have convenient ATM and branch options.
The Types of Credit Unions Offering Business Loans
The National Credit Union Administration (NCUA) divides credit union types into two categories: federal credit unions and federally insured state credit unions. All federal credit unions are regulated by the NCUA and insured by the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF also covers federally insured state credit unions.
However, there are other credit unions that fall outside these categories. One example is state-chartered credit unions that are privately insured. Private insurers still cover credit union deposits, but unlike federally insured unions, private insurance is not backed by the full faith and credit of the U.S. government.
The NCUA further breaks down credit unions by field-of-membership type. Here are the NCUA’s categories for types of fields of membership:
- Community credit unions
- Associational credit unions, including faith-based or fraternal groups
- Educational credit unions
- Military credit unions
- Federal, state, and local government credit unions
- Manufacturing industry credit unions for industries such as chemicals and machinery
- Service industry credit unions for industries such as finance, health care, and transportation
- Corporate credit unions
- Multiple common bond credit unions
- Non-federal credit unions
Credit Unions Open to the Public
There are, fortunately, several credit unions that anyone can join—which can make it easier to get credit union business loans even if you aren’t already an established member. Many of these credit unions can be joined simply by making a small donation to a specific charity or joining an organization associated with the credit union. We’ll go over these options in more detail.
Alliant Credit Union
A good catch-all credit union if you want to open checking and savings accounts with good rates and low fees, is Alliant. Alliant participates in a co-op network that gives members access to 80,000 fee-free ATMs across the country.
You can join Alliant by making a one-time $10 donation to Foster Care to Success, a nonprofit that serves foster youth. You can also join if you live or work in one of the communities near Alliant’s Chicago-area headquarters, are employed by a qualifying organization, or are a family member of someone who’s eligible to join.
While the only business loan product Alliant offers is for commercial real estate, they also offer personal, home, and auto loans. Additionally, they offer mobile and online banking capabilities.
Connexus Credit Union
If you want to work with a credit union with great checking account perks, Connexus Credit Union’s Xtraordinary checking account is a winner.
The account earns 1.75% APY on balances up to $25,000, after which you’ll earn 0.25% APY. For this account, they will reimburse up to $25 in non-network ATM fees if you meet certain activity requirements.
While they don’t offer traditional business loans, you can get competitive-rate business credit cards, mortgage loans, and auto loans.
Connexus also offers full-scale digital banking for convenience.
First Tech Federal Credit Union
With First Tech Federal Credit Union, you’ll have access to their own branches in nine states, as well as a co-op shared branch network, which gives members access to more than 5,000 financial institutions across the country and 30,000 ATMs. First Tech will also refund fees for non-network ATM transactions within the country.
If you’re not already someone who works for an affiliated First Tech company (or related to someone who does), you can join by becoming a member of the Computer History Museum or by joining the Financial Fitness Association.
First Tech offers commercial real estate loans as their only business loan option, with benefits such as no penalties for prepayment and very competitive rates.
America First Credit Union
The America First Credit Union is based in Ogden, Utah, but they participate in a credit union co-op network that gives members access to around 30,000 fee-free ATMs across the country.
The America First basic checking account doesn’t have a monthly fee, and it earns a small amount of interest on balances of at least $500.
America First offers robust business loan products, including vehicle loans, equipment and machinery loans, business acquisition and franchise loans, and commercial real estate loans. They also offer business lines of credit and unsecured capital loans.
Boeing Employees Credit Union
Don’t let the name fool you—anyone living in the state of Washington (as well as parts of Oregon and Idaho) is eligible to join the Boeing Employees Credit Union (BECU).
Most of BECU’s branches are in Washington state, but the credit union participates in a co-op network that gives members access to over 5,000 partner credit union locations and 30,000 surcharge-free ATMs across the country.
To boot, BECU also offers business term loans, business lines of credit, vehicle loans, commercial real estate loans, and business credit cards—including a cash rewards Visa card.
Consumers Credit Union
Membership to Consumers Credit Union is open to anyone who joins the Consumers Cooperative Association for $5.
Business loans from this credit union include commercial mortgages, equipment and vehicle financing, business lines of credit, SBA loans, and credit cards. They also have online and mobile banking features.
Navy Federal Credit Union
You’re eligible to join and get a Navy Federal business loan if you’re a service member or veteran, you work for the Defense Department, or you’re a family member of someone who’s eligible.
With over 7 million members, it’s clear that though technically not available to everyone, it’s possible you might have an affiliation with the nation’s largest credit union.
Navy Federal Credit Union has a broad selection of business bank accounts, credit cards, and loan options, including lines of credit, real estate, vehicle, and term loans. You will also have access to Navy Federal Business Solutions to access a network of other business owners, competitive credit offerings, and more.
GTE Financial Credit Union
You can join GTE Financial through their nonprofit educational financial club, CUSaver, via a one-time $10 membership fee.
This will give you access to business checking and savings accounts, business credit cards, as well as merchant and payroll services.
Their business loan products include commercial vehicle loans, equipment loans, and commercial real estate loans.
Lake Michigan Credit Union
Another one of the largest credit unions in the country, Lake Michigan Credit Union, offers businesses lending products to help them succeed.
With their “LMCU Anywhere” capability, anyone in the country can now become a member. They’re one of the leading credit unions for asset growth as well as “return of member.”
Through LMCU’s Lending and Deposit Operations support team, you can apply for operating lines of credit, term loans, credit cards, real estate loans, and SBA loans.
Federally Insured Credit Unions
It’s important to know whether a credit union is federally insured. Just as banks have the choice to insure their accounts with the Federal Deposit Insurance Corporation (FDIC), credit unions can either be federally insured or not through the NCUSIF, which is managed by the NCUA.
The NCUSIF can insure up to $250,000; as long as your bank account doesn’t exceed that amount, your money is as safe in a federally insured credit union as it is in a federally insured bank.
How to Apply for Credit Union Business Loans
Once you meet the requirements for the credit union you want to join and successfully become a member, you’ll need to get in touch with a representative in order to start the process for a small business loan application.
Since many credit unions don’t offer online services, you might have to call or speak to one of their business loan experts in person.
The Advantages of Credit Union Small Business Loans
Similar to banks, credit unions accept deposits, issue loans, and offer a variety of other financial services. But unlike a bank, a credit union is a not-for-profit organization that is not federally taxed, and is funded and managed by their members.
This means each member of a credit union is an equal owner. Credit union members vote on board members who voluntarily and democratically govern the credit union. Credit unions are not-for-profit, so they return profits back to members, those profits are generally returned to the members in a few ways that we’ll explain below.
Many credit unions have little or no fees on their business loan products.
Lower loan rates
Since credit unions are not-for-profit, they are looking to make less of a return on profit from the loan, meaning you’ll have a lower interest rate altogether.
Higher savings rates
The small business loan interest rates aren’t the only good rates that come with credit union membership. If you become a member of a credit union and use their savings products, you will benefit from better rates—meaning more money for you in the long run.
Access to smaller loans
As profit-making enterprises, banks focus on making large business loans. This leaves small businesses, which often need smaller amounts of capital, at a disadvantage. Credit unions are much more likely to grant you a smaller business loan because they are focused on serving their members rather than on maximizing profits. According to the NCUA, the average size of a business loan from a credit union was $212,000 in 2013.
Faster loan approval
Credit union business loan underwriters typically review business loan applications on an ongoing basis. In contrast, most banks have committees or approval reviews that only occur once a week or month. In addition, credit unions are focused on serving members, so you may find that the staff will go out of their way to streamline your application if you need the money by a particular date.
While banks may have more robust rewards programs, many credit unions offer savings matching incentives or other banking perks you would never find at a major bank. And certain credit unions do have cash rewards programs, you just have to seek them out.
Many credit unions offer classes, workshops, and networking events for their members in a friendly environment.
Frequently Asked Questions
The Bottom Line
Unfortunately, credit unions don’t make it much easier to qualify for loans than traditional banks, especially since they offer such competitive rates.
More than likely, you’ll need an excellent business credit score as well as good personal credit to qualify. You’ll also need to be able to show successful business factors such as revenue, cash flow, and time in business.
Business loans from a credit union are great if you can get them. You may not have all the conveniences of a traditional bank, but you’ll save money in the long run.