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Review and compare alternatives to credit union loans with Swoop
Page written by Chris Godfrey. Last reviewed on November 8, 2024. Next review due July 1, 2026.
Fast, simple and easy to apply for, PayPal business loans are suitable for businesses that use PayPal to process some or all their sales. But how does this financing work? Let’s take a look.
Credit unions are nonprofit financial institutions owned by their members. They offer a range of financial services such as savings accounts, business loans, and checking. Unlike mainstream banks, credit unions reinvest their profits instead of distributing them to shareholders – a strategy that allows them to offer highly competitive interest rates and charge lower fees.Â
Membership of a credit union is typically based on specific affiliations, such as employment, location or membership of certain guilds or groups. Credit unions prioritize members’ financial well-being, often resulting in a more personalized service compared to commercial banks.
Credit unions offer many of the same business loans as the major banks. However, as well as needing to be a member of the credit union you apply to, you’ll usually need good credit, strong financial history and multiple years in business to qualify. Members with poor credit and businesses with less than three years in operation may find it challenging to get credit union financing.Â
Popular types of credit union business loan include:
A business term loan provides a single, lump-sum cash injection that you pay back in regular instalments, plus interest and any fees, over a fixed period of up to 25 years. Instalments may be weekly, monthly or quarterly depending on the type of business you operate.
Some term loans may be unsecured, so you do not provide collateral to protect the lender if you default. Other term loans – typically for larger sums or for riskier businesses – may require security. Interest rates on unsecured term loans tend to be higher and the amount you can borrow will usually be smaller than you may find with loans where you provide collateral.
A business line of credit, also known as a revolving line of credit, is a loan that functions like a high-value credit card. Businesses can withdraw cash as they need it when they need it up to the limit of their borrowing. You may repay the line with regular instalment payments or with irregular payments from received income and you can withdraw the repaid cash again if needed. Unlike term loans, with a line of credit you only pay interest on the sums you have withdrawn, not the whole loan total. This can significantly reduce your borrowing costs.
Equipment loans can be used to buy expensive business machinery and equipment. This type of funding uses the assets you’re financing as security, similar to a car loan or a residential mortgage, meaning there is no need for added collateral. Use the equipment as you pay for it while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.
Commercial real estate loans can be used to buy, construct, or develop business property and land:
Like all types of financing, credit union business loans have their advantages and disadvantages:
Pros:
Cons:
Top tip: If you can’t qualify for a credit union business loan because of bad credit there may be other funding options available. Find out more: Get a business loan with bad credit.
Although there are credit unions across Australia, not all of them provide business funding. This means you’ll need to research credit unions in your area to find an institution that provides the type of borrowing you’re looking for. Alternatively, you can use the services of a loan marketplace that can quickly introduce you to variety of alternative financing offers. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a credit union business loan before.
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:
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.Â
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.
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.
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.
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:
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.Â
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.
If a credit union loan doesn’t work for you, there may be other ways to get the funding you need:
Also known as invoice financing, this type of loan allows you to borrow against the value of your unpaid invoices and it can be a solid option for businesses that lack other forms of collateral. Instead of waiting 30, 60, or 90 days to get paid, the lender may provide up to 95% of your invoice value within a few days or even hours of the bill being raised. Your invoices act as security for the loan, no added collateral is required.
Personal loans for business function similarly to business term loans – you receive a lump sum of money and repay it over time. However, personal loans tend to have lower borrowing limits, higher interest rates, and more rigid repayment terms compared to business loans. Collateral may be required.
Merchant cash advances are suitable for businesses that accept customer payments by credit and debit card. Borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
Revenue-based financing functions like a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (credit card sales plus other income), businesses typically receive a lump sum and pay it back over a short-term schedule, sometimes by small deductions from their daily sales. No added collateral is required.
Business grants are effectively free money – they do not have to be repaid if you spend them properly. The good news is there are literally thousands of grants available across the US and they are provided by federal, state and local governments as well as foundations, nonprofits and other organizations. The bad news is that small business grants are usually highly competitive, slow to fund and often come with strict qualifying rules.Â
Working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare top quality business loans from a choice of lenders. Give your business the boost it deserves. Register with Swoop today.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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