As a small business owner, your decisions hold great importance for the success of your business. From selecting the optimal business structure to determining your banking needs, every choice matters.
In the process of expanding your business, introducing new products and services, and expanding your team, securing a reliable banking partner becomes crucial.
A reliable business banking partner can provide essential capital for your business, offer suitable accounts for day-to-day transactions, and offer unwavering support when you need it most. When assessing your present and future business requirements, it’s worth considering a credit union as your trusted partner.
Credit Unions vs Banks
Credit unions and banks can offer similar services, such as checking and savings accounts, mortgages, credit cards, personal loans, and business banking solutions.
Banks are often backed by the Federal Deposit Insurance Corporation (FDIC) and most credit unions are backed by the National Credit Union Administration (NCUA), making them both safe options, offering protection for up to $250,000 per depositor.
There are, however, some key differences between banks and credit unions such as ownership, fees and rates, and customer service.
One of the biggest differences between the two institutions is ownership. Banks are for-profit businesses owned by shareholders who may or may not also have accounts with the bank. People who use the bank’s services are referred to as customers.
Credit unions are not-for-profit organizations that are owned and operated by their members. Every member, regardless of their account size, gets one vote. Additionally, the board of directors at credit unions is typically a voluntary position.
Fees and Rates
Credit unions tend to charge fewer fees than banks. Oftentimes, credit unions will also offer accounts with no minimum balances or monthly maintenance fees.
Credit unions also tend to offer higher interest rates on savings accounts, while simultaneously offering lower interest rates on loans—making it a win-win for their members.
Credit unions are known for their personalized member service and financial education. Decisions and changes made at credit unions are typically done for the well-being of the members, instead of increasing profits for bank shareholders. Members can feel like they’re part of the team, instead of simply a number in a large organization.
If you’re a small business owner looking to partner with a credit union for your banking needs, you may be curious about what type of financing a credit union can offer.
Types of Small Business Financing
There are many different types of financing available for your small business, but here are the most common ones:
- SBA loans: These loans are guaranteed by the S. Small Business Administration (SBA), thus reducing the risk for the lender. The SBA will repay up to 85% of the loan if a borrower defaults. These often require borrowers to meet extensive requirements, but they can be an affordable way to finance your ventures (if you qualify).
- Term loans: A financial institution lends out a specified amount of money at a fixed interest rate, and the recipient pays it back over a fixed period. Some lenders offer up to or more than $500,000 in borrowed funds, with an average interest rate of about 10%, and repayment period of 10 years. However, every institution is different and terms will be vary based on the lender and credit qualifications of the business applying for the loan.
- Business lines of credit: With this type of financing, the lender offers a line of credit to a business that can be utilized as needed throughout a “draw period”—often lasting 12 to 24 months. With this type of loan, the borrower only has to pay interest on the money borrowed. After the draw period, the repayment period begins and the borrower can no longer access additional credit and has to repay all the money borrowed.
- Commercial real estate loans: This is a great option for businesses with a strong credit history who have commercial property. Similar to with personal property, the lender can foreclose on the property if payments are not being made to recoup their investment. In exchange, the lender can often offer these loans at competitive, affordable rates.
Benefits of a Small Business Loan
Starting a new business is no small feat. Oftentimes, it requires a large amount of capital before it can get off the ground.
A small business loan can help businesses get started in many ways, whether they need the capital for inventory, office space, or even a specific piece of equipment to get started.
Once a business has been established, small business loans can help entrepreneurs expand their business, allowing them to achieve further growth by purchasing more supplies and inventory from vendors, or even creating jobs. Investing in business expansion and growth can ultimately help increase profitability and revenue.
Small business loans also protect business owners from cash flow disruptions. For instance, if there are employees, bills, and vendors to pay and a client is late on an invoice, a small business loan can help temporarily bridge the gap between income and expenses. Financing can also help during slow seasons or unexpected emergencies.
Similar to personal credit, any business considering this type of financing should have a strong credit history. Positively, managing a small business loan responsibly can show future lenders that a business can be trusted. A business’ strong credit score can secure bigger financing opportunities, often at better rates!
One major bonus – business owners can also deduct the interest from their small business loans when they file their taxes, thereby reducing their tax obligations.
5 Benefits of a Small Business Loan from a Credit Union
Credit unions are a great business solution for entrepreneurs seeking transaction capabilities and simplified applications, better terms and rates, and personalized service. Here are five specific reasons why you should consider securing a small business from a credit union:
- Better rates and lower fees
- Faster service
- Increased flexibility and accessibility
- Better service
1. Better rates and lower fees
As a small business owner, you’re likely always looking for ways to reduce your expenses. Whether it’s through finding a competitively priced vendor or securing the best possible interest rate for your small business loan.
Since credit unions are owned and operated by their members, it is their mission to offer competitive rates. Banks, on the other hand, often seek to maximize their profits for their investors, thus driving up the interest rates for the consumer.
For similar reasons, credit unions charge fewer and lower fees than banks. Credit unions can also be more flexible when it comes to loan terms and offer tailored solutions for their members.
Throughout the life of your business, transaction fees and interest can add up to a lot of money. Lower loan interest rates, fewer fees, and personalized service can make a small business loan from a credit union a smart, economical choice.
2. Faster service
Your business moves quickly. When you decide you need financing, you may need to act in a timely fashion to expand your business and increase your productivity (and revenue).
Credit unions often serve fewer members than banks. From a servicing perspective, this allows them to process applications quickly and efficiently. Credit unions are also often more relationship-based, making it easier to connect and create strong business relationships.
3. Increased flexibility and accessibility
Credit unions are more willing to loan smaller loans than banks— making them an ideal banking partner for small business owners. Credit unions strive to increase banking accessibility to their members as well, giving plenty of options to bank when it’s most convenient.
Since they strive to improve their member’s banking experiences and successes, credit unions are sometimes more lenient with credit scores. Business owners with a short or less-than-perfect credit history may find more success working with a credit union.
4. Better service
Though you may be a “small business”, that doesn’t mean you should be treated as such. Credit unions are community and member-oriented, regardless of a member’s financial situation. They consistently outperform banks when it comes to member satisfaction.
Furthermore, credit unions allow for increased accessibility for your accounts, making your transactions and everyday banking easier and more convenient.
Credit unions are ideal partners for small-businesses because they serve their communities by giving back and offering personalized, financial support and products.
When you partner with a local credit union, you’re supporting community growth and involvement—which mutually benefits everyone!
Commercial Loans from LFCU
At Lafayette Federal Credit Union, we proudly support small businesses and their missions to serve their communities. We offer numerous opportunities for them to secure financing with us so their business’ can grow and thrive.
We offer the following loan types to help your business succeed:
- Commercial Real Estate Loans
- Lines of Credit
- New and Used Vehicle Loans
- SBA Loans
We offer flexibility when it comes to our financing, allowing you to finance accounts receivable, inventory acquisitions, industrial equipment, furniture, and much more.
How to Get a Business Loan
The process of obtaining a business loan from a credit union is usually straightforward. First, you’ll need to ensure that you are a member of the credit union. Next, you’ll need to gather information about your business such as the address, tax ID number, and your plans for the business loan. Finally, you’ll also need to gather your business’ financial information such as your profit and loss statement, annual revenue statement, and tax returns.
Learn More Offers Innovative Solutions for Your Growing Business
We offer a variety of products and services to finance your growing business. Small or large, we have the resources and tools to help you succeed. Learn more about our offerings or reach out to us directly.