Do you need to draw a business loan? If yes, you must have thought of a bank as the primary loan source. That’s what the majority of business owners do. Today more people and business owners are shifting away from the conventional banking system and opting in for credit union, to cater to their financial needs.
Today, around 6,000 credit unions all across the United States comprises of 100 million members.
Credit unions provide the same service as traditional banks. Today, the start-up and small business owners consider credit unions as their “go-to” fund resource.
It has got many business owners thinking, why should they say yes to credit unions? The reasons are plenty. Let’s start by having a clear idea about credit unions.
Understanding A Credit Union
It is essential to know how credit unions work! Though it seems that there are functions similar to a bank, there are significant differences as well. Credit unions function for non-profit co-operatives. Banks, on the other hand, work for a profit.
If you have an account in a credit union, you are also the member and owner, and not a consumer. Hence, when the union makes any profit, it gets shared as a dividend to other members or is reinvested.
Since it’s a non-profit organization; the credit unions don’t need to pay a tax. Hence, they can provide their members with competitive interest rates.
You can seek business and personal credit cards, vehicle loans, mortgage loans, and also business loans from a Navy Federal Credit Union.
The credit union types
You can opt-in for multiple credit union types to support your financial requirements. The two essential types comprise follow:
- Federal Credit Union – The National Credit Union Administration governs these unions. It is insured by NCUSIF (National Credit Union Share Insurance Fund)
- Federal Insured State Credit Unions – These unions are insured by NCUSIF
Different types of credit union business loans
The credit unions provide a wide range of loans to help the established, start-up, and small business owners. Each loan has its requirements which you need to know before you apply for one. The prominent business loans are:
It is one of the most standard loan types that business owners have opted-in for! It is also called a term loan at times where a credit union provides a particular loan amount.
The borrower makes installments based on the repayment schedule that is usually once a month, on a stipulated day/date.
This payment gets applied to the principal amount, on which the credit union charges an interest. Car loans and mortgages are two common instances of installment loans.
The terms and interest rates vary. If you’ve taken a small installment loan, you can repay it within a few months.
On the other hand, if you have borrowed a significant amount, you might need 20 years or more to apply that.
The interest rates vary on loan and depend on the borrower’s creditworthiness. Even though borrowers can avail this loan in various amounts, the credit unions can fix a specific ceiling limit, based on their lending guidelines and policies.
If you have to make a huge business investment, this is the best loan type for you. It helps you to make purchases where do you don’t need to pay the entire amount upfront.
Lines of credit
The loan is the same as a credit card and provides the borrower a specific credit limit. You can draw out money as many times as you want or need, comprising the stipulated amount.
It is slightly different from the term loans that get disseminated as a significant monetary amount. You can use this loan in many ways.
For instance, if you have a crucial investment or you want to solve your cash flow problems, lines of credit are the best way out. You can also use it for buying your business inventories, supplies, and paying for various business expenditures.
Small Business Administration loans
If you have a small business and have a good credit history, credit unions can help you with SBA (Small Business Administration) loans.
Today, it’s become popular with small business set-ups because of the favorable terms and reduces interest rates. SBA’s don’t lend to the business owners directly.
Instead, there are intermediary lenders, such as the credit unions that sanction the loan. A considerable part of the loans get approved by the government that reduces the risk.
Business loans come with many challenges! And the small and start-up businesses witness maximum difficulty in sourcing a business loan.
Lenders look upon maximum business ventures as risky. However, companies that lack proper financial documentation have more risk.
You could be planning to make a start or been in the business for a few years – there’s always a way out. Credit unions provide start-up loans that can help you immensely.
Some business owners also seek personal loans from credit unions to cater to their business requirements.
How can you qualify for a credit union business loan?
Joining a credit union is different from seeking financial help from a bank. In the case of a traditional bank, you need to offer your details and become a consumer.
An account holder in a credit union is a member. To become a member, you need to learn about specific memberships. It might appear complicated, but in reality, it is a simple process.
The business owners and consumers can join the credit unions through the following:
- Military affiliation
- Family members and relatives
- Industries or employees
- Religious institutions
- Geographic locations
- Alumni associations
And a few other group memberships’, comprises of homeowners’ association or labor unions.
These are some of the essential details that you need to know to draw a business loan from a credit union. Today, you can browse through various credit unions and choose one depending on your business and personal requirements.
Make sure to read the terms and conditions of the credit unions and loan types and make an informed decision.
This Guest post is written by Simon Morris, he is a freelance writer. He has written a unique and very interesting article on various categories such as Business, Lifestyle and currently associated as a blogger with various industries.