Credit Union Business Loans: Everything You Need to Know
Janet Schaaf is a freelance writer, editor and proofreader who considers reader advocacy to be her calling. After taking a few roads less traveled, Janet completed a bachelor’s degree in English Literature from the University of Missouri-Kansas City, with English Department Honors. She has been correcting grammar and checking facts since she could string a sentence together. For the past three years, Janet has focused on making personal finance topics understandable and relatable. Loan terms and credit card agreements can look overwhelming, but understanding what you’re agreeing to is paramount in grasping the impact debt can have on your life.
Credit unions offer business loans, similar to traditional banks and online lenders, but they often have fewer branches and may have stricter financial requirements. Credit union business loans may be a good choice for some small businesses that need funding, but you will need to be a member of the credit union to qualify.
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What is a credit union?
Credit unions are member-owned, not-for-profit financial institutions. A major plus of being a not-for-profit is credit union business loans can come with lower rates for members.
Though credit unions offer many similar products and services to traditional brick-and-mortar banks, credit unions can come with membership requirements based on occupation, industry, location or organizational affiliation, among others.
Pros and cons of credit union business loans
Credit unions can be a solid choice for some small businesses looking for small business loans. Answering the question, “Should you get a credit union business loan?” depends on the pros and cons.
| Pros | Cons |
|---|---|
Reduced fees Higher savings rates Lower loan rates | Must be a member to apply for loan products Can require personal guarantee Can come with stricter financial requirements |
Types of credit union business loans
Credit Unions can offer various types of business loan products to help fund your small business. Below are a few of the most common products credit unions might offer with a quick explanation of how they work.
Business term loan
A business term loan provides a lump sum of cash upfront repaid with interest in recurring monthly installments. Credit unions tend to offer long-term business loans, which can be useful for financing large investments like new machinery, real estate or other long-term business growth initiatives. Online lenders are more apt to offer short-term business loans lasting anywhere from three to 24 months, making them a better fit for when you need money fast in an emergency. Repayments may be weekly with short-term business loans.
Business line of credit
A business line of credit is a revolving type of funding that you can draw from when needed. It can be helpful when you need funding for something ongoing and unexpected, such as inventory expenses. Like a credit card, you only pay interest on what the amount you borrow and after you repay what you owe, your credit line replenishes so you can withdraw the funds again.
Equipment loan
Equipment loans provide funding for business owners to purchase or replace commercial equipment. With this type of funding, the equipment is used as collateral to secure the loan if the borrower should default. Some credit unions may require you to make a down payment of as much as 25% of the loan amount. Repayment terms can vary between lenders but typically are about five years, which you’ll pay in monthly installments. Interest can vary by lender. Some equipment loans can often require a personal guarantee.
Commercial real estate loan
If you’re looking to purchase property or make renovations to a building, a commercial real estate loan might help. Like equipment loans, commercial real estate loans are secured business loans, which means that the property and/or building act as collateral to back the loan. Term lengths for commercial real estate loans from credit unions can extend 15, 25 or 30 years, and interest rates are dependent on your credit history and the credit union.
THING TO KNOW
Credit unions can also offer other financial services for small businesses. These types of services can include business credit cards and business banking checking and savings accounts, along with money market accounts.
How to get a credit union business loan
Applying for a business loan with a credit union is similar to traditional banks and online lenders. However, at a credit union there are additional requirements to consider:
1. Meet the membership requirements.
A credit union will require you to be a member in order to apply for its business loans. The membership requirements may be based on geography, employment industry, or organizational affiliation.
Depending on the credit union, there may be other criteria to meet as well. For example, Self Help Credit Union requires you to join its nonprofit, the Center for Community Self-Help, and pay a $5 fee, while Navy Federal Credit Union requires you or your family member to be a veteran or active duty service member. Some credit unions, such as Navy Federal, also require you to join a business membership program which can come with specific deposit requirements.
2. Provide information about your business.
When applying for a business loan at a credit union, you will need to provide specific information about your small business. Each lender may have its own qualifications but the most common business loan requirements included are business tax returns, credit score, proof of annual revenue and the length of time your business has been operating.
3. Explain the funding purpose.
During the application process, you’ll likely be asked to determine the type of funding you’re interested in, such as an equipment loan or line of credit. You will also be asked to provide information on how you plan to use the funds and will likely need to include the amount you want to borrow.
Where to get credit union business loans
Here are some credit unions that offer business loans:
| Credit Union | Loan types offered | Membership eligibility |
|---|---|---|
| AmeriCU Credit Union |
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| Digital Federal Credit Union (DCU) |
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| Navy Federal Credit Union |
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| Self-Help Credit Union |
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| Teachers Federal Credit Union |
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AmeriCU Credit Union
AmeriCU Credit Union offers various types of business loans. Both its business term loans and commercial working capital lines of credit can extend up to $1,000,000, while its commercial vehicle loans have a maximum loan amount of $100,000 and the commercial real estate loans cap out at $15,000,000. AmeriCU Credit Union also offers other products to small businesses, including business credit cards and SBA loans.
Membership requirements: To become a member of AmeriCU Credit Union, you must either live, work, worship, go to school where AmeriCU operates, work with an affiliated company, hold membership at the American Consumer Council (ACC), are an immediate family member of a current AmeriCU member, or an active or retired member of the U.S. military.
Digital Federal Credit Union (DCU)
Term loans and lines of credit offered at Digital Federal Credit Union (DCU) come with a maximum amount of $5,000,000, while its real estate loans and construction loans can each reach up to $20,000,000. Digital Federal Credit Union (DCU) also provides business credit cards.
Membership requirements: Anyone who is related to current DCU members is eligible to become a member. In addition, eligibility is open to those who work for or are retired from an associated company, belong to an organization associated with DCU, or who live, work, worship or attend school in an area associated with the credit union.
Navy Federal Credit Union
Navy Federal Credit Union offers business lines of credit, commercial real estate loans, and equipment loans with a maximum borrowing amount of $0 or higher. Checking lines of credit and business credit cards are also available.
Membership requirements: Those who are active or retired service members are eligible for membership, as are family members of someone who served. Any civilian who works for the Department of Defense can also qualify.
Self-Help Credit Union
Self-Help Credit Union offers small business and non-profit loans for existing businesses without a maximum loan amount in most states. Commercial loans are also provided and can start at $15,000 with no borrowing limit. Other business products include term certificates, savings, and money market accounts, along with SBA loans.
Membership requirements: To be eligible, members must reside, work, worship or attend school in an area affiliated with the credit union. You will also be required to join the credit union’s nonprofit Center for Community Self-Help and pay a $5 fee.
Teachers Federal Credit Union
Credit union business loans offered at Teachers Federal Credit Union include term loans that can be used to finance a wide range of projects up to $500,000, commercial real estate loans up to $5,000,000, business lines of credit that can reach up to $250,000, and business vehicle financing with a maximum loan amount of $250,000. They also offer business checking and savings accounts, business money market accounts, business certificates and business credit cards.
Membership requirements: Unlike other credit unions, Teachers Federal does not require a specific job or group affiliation, nor do you have to be in a given location to become a member. However, keep in mind that many of its loan products do require that your business is registered in New York state to qualify.