Credit Union Business Loans: Everything You Need to Know
Credit unions, like banks, offer business owners a wide range of lending products, including small business loans. But credit union business loans remain an underutilized source of funding with a majority of borrowers choosing banks or online lenders instead.
Membership requirements, product availability and limited branch locations can deter small business owners from considering a credit union. However, low rates, flexible repayment terms and strong membership relationships make credit unions worth a second look.
- What does a credit union do?
- Is a credit union loan right for your small business?
- Types of credit union business loans
- How to qualify for a credit union business loan
- How to apply for credit union business loans: 9 top options
What does a credit union do?
Credit unions are nonprofit financial organizations that offer an array of financial services to both consumers and business owners. By becoming a member, you can access many of the same services and products offered by banks with potentially lower interest rates and fees. Online lenders are going to be faster to fund than either banks or credit unions, but costs are typically higher and weekly or even daily repayment schedules are not unusual.
Who can join?
Each credit union is responsible for defining membership. Eligibility can be based on many factors, including your employer, family members who are already members, group or organization affiliation such as your school or church, or your geographic location. Other credit unions, like those listed below, offer easy paths towards membership regardless of the aforementioned factors.
Is a credit union loan right for your small business?
Business owners often worry that credit unions won’t offer the same resources and product availability as banks. But it’s a myth that credit unions are either difficult to work with or not sophisticated enough to handle small business, said Dona Svehla, chief lending officer at GTE Financial, a Tampa-based credit union.
“It’s true that some credit unions don’t offer small business loans,” said Jessie Maxwell, business development officer at Self-Help Credit Union. “But those that do may offer more comfortable terms than what a borrower might find elsewhere.”
Despite the advantages and the fact that commercial credit union loans grew by 15.3% at the end of 2019, banks continue to dominate the small business lending field and ended 2019 with just over $2.355 trillion in commercial loans compared with credit unions’ $81.8 billion.
Here’s a closer look at the advantages and disadvantages of credit union business loans:
Pros of credit union business loans
Lower rates. Because credit unions return earnings to members — not stockholders — they are generally able to provide better interest rates and lower fees.
Strong customer relationships. Most credit unions are local and have missions to support the communities in which they’re based. Small business borrowers report higher levels of satisfaction at credit unions and small banks.
Higher approval rates. Small business owners are more likely to get approved for funding from credit unions than through large banks. However, they may fare equally as well with small banks, which have about the same approval levels, minus the membership requirements. Online lenders generally have the highest approval rates but tend to be more expensive.
Cons of credit union business loans
Membership requirements. Some membership requirements are quite lenient, but other credit unions are restricted to certain groups of people or geographic areas.
Fewer physical branches. While national banks have a location on nearly every corner, credit unions tend to have fewer branches. However, many credit unions participate in a shared branch and ATM network.
Lending products may be limited. Not every credit union offers small business loans and those that do may have limited offerings, especially when compared with national banks.
Lower lending limits. National banks — and even some online lenders — may provide higher maximum loan amounts.
Types of credit union business loans
When searching for business funding, it’s important to identify the funding product that best suits your needs. There are many credit union business loan options, but here are some of the most common:
Small business loans are taken out for a lump sum and repaid over a specific period. Payments, which include a portion of the principal balance plus interest, are often made monthly for the duration of the loan term. Loan terms can be short (3 to 18 months) or long (3+ years), depending on the loan agreement.
Line of credit
A line of credit is revolving, which means business owners can borrow against the line as needed. When they repay it, the full amount is replenished, up to an approved credit limit. Borrowers are only required to pay back what they borrow, plus interest or fees.
Though there are different types of SBA loans, loans backed by the Small Business Association, the popular 7(a) is guaranteed up to 85% of the total loan amount. This means banks and credit unions typically see them as a lower risk when compared to other lending products and offer relatively low interest rates and high amounts. However, SBA loans often have a more complex application process.
Also known as a commercial real estate loan, commercial mortgages are long-term loans (up to 10 to 15 years) that are used to buy property, be it office space, industrial buildings, retail centers, hotels and more. Like a personal mortgage, commercial mortgages are frequently dependent on the value of the property as well as the applicant’s credit score, their ability to put down a deposit and the business’s finances. We’ll talk more about loan requirements, below.
Business credit card
A business credit card operates much like a personal credit card. The cardholder can use the card to make purchases up to the card’s credit limit. Each month there is a balance on the card, the cardholder must make a payment. If the balance is paid in full, no interest will be applied. Otherwise, the cardholder must pay interest on top of the balance.
How to qualify for a credit union business loan
One of the primary eligibility requirements has little to do with your personal or business finances and everything to do with membership. As briefly discussed above, credit unions typically have membership requirements, and you’ll need to become a member before the credit union will grant you a loan. However, meeting this particular requirement doesn’t always need to be difficult.
Many credit unions offer several paths to membership including:
- Family connection: A family member who already belongs to the credit union.
- Geographic location: You live, work, worship or go to school in a specific location.
- Making a donation or joining a specific organization
Business loan requirements
Once you’re a member, however, you’ll likely need to meet other requirements in order to be approved for a small business loan. Credit unions will most likely take a close look at:
- Personal and/or business credit score
- Annual business revenue
- Existing debt/expenses
It’s important to have your application documents in order. A loan officer can tell you exactly what you’ll need to submit along with your application such as tax returns, financial statements and projections. The faster you submit those, the more quickly you’ll move through the underwriting process.
How to apply for credit union business loans: 9 top options
If you’re considering credit union business loans, here are a few credit unions that allow anyone to become a member and offer business financing.
BECU (Boeing Employees Credit Union)
BECU offers business owners in Washington several ways to borrow including:
- Term loans up to $250,000 with rates as low as 3.81%.
- Lines of credit up to $100,000 with rates as low as 6.00%.
- Business vehicle loans with up to 100% financing and rates as low as 3.49%.
- Commercial real estate loans up to $15,000,000.
Contact BECU in order to apply.
How to join: Boeing employees are eligible for membership, as are individuals who live in Washington or certain counties within Oregon and Idaho. However, anyone who joins the Northwest Credit Union Foundation (NWCUF) for a $20 membership can become a BECU member.
Consumers Credit Union (IL)
The Gurnee, Illinois-based credit union is open to anyone who pays a one-time $5 fee to the Consumers Cooperative Association. Consumers Credit Union (IL) offers commercial mortgages, a secured line of credit and equipment financing to small business owners. You may find its business loan application here.
How to join: It’s possible to join the credit union online. Consumers only has branches in Illinois, but is part of a national network of shared branches.
Digital Federal Credit Union (DCU)
Digital Federal Credit Union (DCU) is one of the top 20 largest credit unions in the United States. In addition to its DCU Business Visa Platinum Credit Card and DCU Business Visa Platinum Plus Credit Card, which offer APRs as low as 9.99% variable, DCU provides members with commercial lines of credit between $500,000 and $20,000,000, business vehicles loans with up to 100% financing and rates as low as 3.99% and business equipment loans up to $100,000.
DCU also offers commercial mortgages and commercial construction loans. You may be able to use its QuickApp application under certain circumstances.
How to join: If you don’t meet DCU’s employer, family member or locational requirements, you can become a member by joining Reach Out for Schools starting at $10 a month or by joining one of the other seven organizations with which DCU partners. Each one carries a membership cost.
GTE Financial offers Florida business owners access to small business loans and commercial loans, including commercial vehicle loans, equipment loans and commercial real estate loans. Business owners must work directly with a loan representative to get personalized information on limits, rates and terms.
How to join: There are several paths towards GTE membership, but ultimately membership is open to anyone who agrees to join CU Savers, a Florida-based group. CU Savers is a community organization based in Tampa, Florida, and you can join with a one-time membership fee of $10.
NASA Federal Credit Union
NASA FCU members who operate businesses within Maryland, Virginia and Washington, D.C. can apply for working capital loans up to $1,000,000; business vehicle and equipment loans up to $250,000; and lines of credit up to $2,000,000. NASA also partners with Potomac Business Services to provide larger commercial real estate loans.
You may start your business financing application online.
How to join: NASA employees and their families are automatically eligible for membership. But, anyone can become a member of NASA FCU by joining the National Space Society (NSS). NASA FCU will even provide new members with a complimentary one-year membership to NSS, which will allow them to enjoy all NASA FCU membership benefits.
Navy Federal Credit Union
Navy Federal offers secured and unsecured term loans in addition to a line of credit, real estate financing and SBA loans. Business owners may be able to take advantage of NFCU’s auto lending expertise. The credit union offers some of the lowest starting APRs for consumer auto loans — small businesses can choose from business vehicle financing or commercial vehicle financing intended for heavy-duty trucks or vans.
But it’s important to note that its membership restrictions are fairly strict, open only to those with military connections. You may also need to have strong credit or at least two years in business in order to qualify. But those who do qualify will have access to the largest U.S. credit union, by assets. You can find its small business loan application on its website.
How to join: Membership is open to active-duty members of the military as well as veterans and retirees and their families or household members. Department of Defense civilians, reservists and those who are in the military’s Delayed Entry Program or ROTC are eligible as well.
Self-Help Credit Union
Self-Help Credit Union was created with the needs of small businesses and nonprofits in mind. Though the credit union serves members across the nation, it has a mission to help underserved communities access financial services.
Self-Help offers small business loans up to $500,000 and larger loans for certain projects such as commercial real estate. It offers SBA 504 loans and New Markets Tax Credit loans, which are designed to help businesses in economically-distressed areas.
Self-Help Credit Union services business members in Illinois, California, Florida, North Carolina, Virginia, South Carolina and Wisconsin. Those interested in business loans through Self-Help Credit Union can get information about rates and terms by contacting Self-Help directly or visiting a branch.
How to join: Individuals who otherwise may not meet membership requirements can join by becoming a member of the Center for Community Self-Help, which requires a one-time $5 fee.
Teachers Federal Credit Union
Not just for educators, Teachers Federal Credit Union offers:
- Business line of credit up to $250,000
- Term loans up to $500,000 with variable interest
- Vehicles loans between $5,000 and $250,000 with rates starting at 3.50% (prime + 0.25%) as of May 4, 2020
- Commercial mortgages up to $5,000,000 with balloon or adjustable rate terms available. Adjustable rates start at 3.50%.
Though Teachers is open to anyone who makes a $1 deposit, it may be a more practical option for those who live near one of its 31 New York branches. Small business owners are invited to apply for financing by either dropping off an application in person or mailing it to its Smithtown, N.Y. address.
How to join: Membership is open to anyone — there are no employer or geographic restrictions here. If you don’t live near one of its New York locations, Teachers is part of a network of 5,400 service centers across the country.
United Federal Credit Union
United FCU offers term loans, a line of credit, real estate financing as well as 7(a) and 504 loans through the SBA. Its line of credit starts at $10,000 while real estate loans start at $25,000. Business owners can choose from two credit cards, including its Business Visa card with no annual fee. You must call or visit a branch in order to apply.
How to join: Membership is open to those who live in Arkansas, Indiana, Michigan, Nevada, North Carolina, Ohio or Oklahoma. It may also be possible to join if you are an employee or retiree of H.J. Heinz Company or 900 other eligible corporations.