The process to get a business loan from a credit union is similar to getting a loan from a major bank – you’ll typically need good credit, strong financials and several years in operation to qualify. Here’s the process from start to finish:
Understand your financing needs
Before you apply for any type of loan, you should ask yourself why you need the funds and what will they do for your business? You should also take stock of your financial situation, including cash flow forecasts and your current debt/income ratio – a measure of how much you already owe compared to your revenues. This will help you better understand your loan affordability, and if you have the capacity to repay the loan without placing undue stress on your business.
Ultimately, if you have a clear and positive use for the funds, a credit union business loan may be right for you. However, if you’re borrowing because your business is in distress you are probably making the situation worse and you should look to other options – such as cost cutting or seeking a business partner – before taking on more debt.
Evaluate credit union business loan requirements
Every credit union will have their own loan requirements, such as credit scores, documentation, loan limits, length of time as a member and how long your business must have been in operation. Invest the time to compare different requirements from different credit unions before settling on a deal. Doing so could improve your chances of loan approval and perhaps lower the cost of your borrowing. Also, keep in mind that credit unions will usually have stricter qualifying rules than online lenders, (also called ‘alternative lenders’), so if your credit score is weak or your business is new, you may be more successful seeking funds elsewhere.
Become a member
Credit unions only lend to members, so you’ll need to join your chosen institution to be eligible for a loan. To join the credit union, you’ll usually need to fill out an application with basic details about yourself and your business. You’ll also need to provide verification that you meet the criteria for membership, such as proof of address, membership of a certain guild or group, or employment at an eligible organization.
Prepare and submit your loan application
Once you’re a member you can submit your business loan application. Some credit unions may let you do this online or over the phone, whereas others may ask you to visit a branch location. There may also be a waiting period between joining a credit union and being able to request a loan.
You’ll usually need to provide the following:
- Basic information about your business, including its official name, address and tax number.
- Business plan.
- Business and personal bank statements.
- Business and personal tax returns.
- Financial statements (e.g. profit and loss statement, cash flow statement).
- Collateral information, if applicable.
- Details about the business owners, including names, Social Security numbers and addresses.
Review your loan agreement and get funded
Credit unions are typically slower to vet and approve business loan applications than online lenders, so be prepared to wait several days, or even weeks, before getting their answer. If your application is successful, they will send you a draft loan agreement. This will itemize the terms and conditions of their offer, including loan amount, loan duration (‘term’), interest rate and any fees. Check these details carefully and if there is anything your are unsure about, ask your lender for further information.
Once you accept the draft agreement you’ll be provided with a final contract for signature. As soon as that’s done you’ll usually receive the loan proceeds as a direct bank transfer within a few business days.