With more than 27 million Americans starting or running a small business, the demand for financing is significant. Every business owner needs help to make their business a success, and much of it starts with the approval of their small business loan.
Investing in your dreams is potentially one of the most important things you’ll ever do, and you want to work with a financial institution that you trust. Whether you’re looking for a small business loan to either grow your existing company, or take the leap from entrepreneur to small business owner, you have a friend in credit unions.
Here are three benefits you could experience by going to a credit union for your small business loan.
Local approach to approval
Credit unions are just as thorough as other financial institutions in their review process for small business loans, but they take the local community and their relationship with the business owner into account. Credit unions are very involved in the communities they serve, so financing a loan for a small business that will boost the local economy and bring something positive to the area is a win-win for them.
Small businesses play a major role in economic growth, adding 1.4 million new jobs in 2014 according to the SBA. Credit unions are well aware of the importance of small businesses within local communities, so are more inclined to help them succeed. In 2016, credit unions approved 42% of loan applications, while big banks approved just 23%.
Lower fees and rates
Credit unions are not-for-profit institutions that are owned by their members – the people that use them. As a result credit unions don’t have to return earnings to stockholders looking to make a profit on an investment. Instead, credit unions return revenue back to members in the form of lower processing fees and better interest rates on lending and deposits.
According to data from SNL Financial, in 2016 the national average interest rate on an unsecured, 36-month loan is 9.24% at credit unions, compared to 10.27% at banks. Credit cards carry an average interest rate of 11.62% at credit unions, beating the 12.65% bank average.
Moreover, the costs associated with joining a credit union and monthly checking fees are considerably less than banks, and sometimes free. You are required to own membership shares when you join, meaning you’ll have to deposit a nominal amount into a savings account; however this is still your money – not a fee.
A personalized experience
Because credit unions are owned by their members, there is a larger emphasis on developing personal relationships. Free financial counselling and planning is offered at some credit unions and employees are extremely supportive to the needs of all members.
While most credit unions accept members from any field or profession, some credit unions serve specific communities. If there is a credit union serving your particular trade, this can provide an even deeper understanding of financial goals and expectations for your loan and small business.
Many banks start their business loans at $250,000, which can be too much for smaller start-ups. Credit unions offer smaller loan amounts – a huge advantage for small businesses and entrepreneurs that need a more tailored approach to business lending.
Prepare for success
Of course, credit unions don’t approve any and all small business loans – you will need to come prepared.
Every lender will look for a solid business plan that includes a road map on how you plan to repay the loan, and they will typically ask for three years of tax returns alongside a personal financial statement.
It’s smart to come with some knowledge of the type of loan you want and the amount you’ll need to borrow, as well as evidence of how you can repay the loan as lenders will always want to know you’ll be able to generate enough cash flow to make good on their investment.
Check with your local credit union to see how the credit union difference can benefit you in your small business endeavors or to realize your entrepreneurial dreams.