Understanding the Pros, Cons, and Types of Credit Union Business Loans

Understanding the Advantages of Credit Union Business Loans

• Cost-Effective Borrowing: Opting for business loans from credit unions could result in lower interest rates and fees compared to traditional banks.
• Dedicated Service: Loan officers at credit unions can provide personalized support helping you with the application process.
• Community-Oriented: Many credit unions have a community-centric approach, often focusing on assisting underserved groups.

Limitations of Credit Union Business Loans

• Lower Lending Cap: Credit unions, owing to their smaller size, may have lower business loan borrowing limits than banks.
• Membership Constraint: While some credit unions offer open membership, others restrict it to specific groups or regions.
• Limited Branches: Being primarily regional, the number of branches of credit unions can be limited.

Different Types of Business Loans Offered by Credit Unions

Credit unions provide a variety of loan types similar to conventional banks, albeit in a lesser number. These include:

• Term Loans for Business: Borrow a specific amount and repay it over a period of time with fixed monthly installments.
• Credit Lines for Businesses: Business credit lines operate similarly to credit cards, allowing you to borrow up to a certain limit. Any repayments on the account restore the available credit.
• SBA loans: Some credit unions offer loans backed by the SBA, which often come with attractive rates and extended repayment terms.
• Commercial Real Estate Loans: These loans can be used for constructing, renovating, or purchasing commercial properties.
• Vehicle Loans: Vehicle loans cater to the financing needs for vehicles owned by your business.
• Working Capital Loans: These loans cover costs like payroll, rent, or inventory, especially during periods of reduced business cash flow.
• Loans for Business Acquisition: Such loans can be useful when a company plans to acquire another business.

Procedure to Secure a Small Business Loan from a Credit Union

To apply for a small business loan from a credit union, follow these steps:

1. Assess your Funding Requirements and Eligibility

Prepare a business plan outlining your project’s income and expenses to help you determine the amount of additional funding needed. Check your eligibility for the credit union. If the one you prefer isn’t open to all, ensure you work, live, or are part of a group that qualifies for membership.

2. Prepare Necessary Documentation

Gather required documentation, like bank statements, tax returns, and a business plan. Review lender requirements. Some may require two or more years in business, and you might need documentation to prove you’ve been in business long enough to qualify.

3. Explore and Compare Options

Research credit unions, including those in your area and ones you might qualify for based on membership requirements, such as ties to the military or government employment. Compare options based on products and services, rates, fees, and customer service reputation.

4. Become a Member of a Credit Union

Join your preferred lender by applying online or at a branch. If required, make a donation or deposit to secure your eligibility. Provide documentation, such as your Social Security number, proof of address, and driver’s license, as required by the financial institution.

5. Fill Out Your Loan Application

After becoming a member, complete your loan application online or in person. Provide the required documentation and information about yourself and your business. Promptly answer follow-up questions to expedite the application process.

6. Review and Sign Your Loan Agreement

Go through the loan agreement, including rates and terms. If everything is as expected, sign the loan agreement to accept it. Start making payments on your new loan.

Guidelines to Compare Business Loans from Credit Unions

When comparing credit union business loans, consider these factors:

• Interest Rates: Interest rates play a significant role in determining the loan cost. A small difference in percentage points can impact the total cost, especially for large loan amounts.
• Qualification Requirements: Ensure that you meet the qualification requirements for membership in your top choices.
• Repayment Terms: Some credit unions offer extended repayment terms, which can result in lower monthly payments. But bear in mind, longer repayment terms could lead to higher interest costs.
• Maximum Loan Amounts: Compare credit unions based on the maximum loan amounts they offer to ensure you can borrow the amount you need.
• Collateral: Check if the credit unions require business collateral to qualify for a loan.

Alternative Business Financing Options

If credit union business loans aren’t the best fit for your needs, consider these alternatives:

• Bank Loans: While traditional banks might have higher fees and interest rates than credit unions, they could offer larger loan amounts and broader product lines.
• Online Lenders: Online lenders can provide quicker and easier approval, but their interest rates might be higher.
• SBA Loans: Though the application process for an SBA loan could be challenging, they generally offer competitive rates and repayment terms.
• Invoice Financing and Factoring: These provide small businesses an advance based on unpaid invoices or receivables.
• Merchant Cash Advances: A merchant cash advance provides a lump sum, repaid via a portion of future credit or debit card sales.
• Grants: Although competitive, grants do not require repayment, providing an excellent opportunity for new businesses.
• Crowdfunding: If you have a strong online following, you can request donations for your business.

How Buy Side Selects the Best Small-Business Loans

Buy Side evaluated 28 small-business lenders based on key areas like affordability, loan options, underwriting requirements, transparency, and customer experience. Our independent research and editorial team uses data-driven processes to assess each lender. We considered factors that business owners might value, such as traditional business loan products, discounts, application guidance, options for bad credit, and solutions for short-term funding needs. We focused on lenders with at least $1 billion funded and with five or more years in business. We ensured that both traditional and online lenders offer loans in most states. Learn more about how Buy Side rates the best small-business loans using its data-driven methodologies.

Our ratings are based on the following five factors: