Credit union business loans

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    Page written by Chris Godfrey. Last reviewed on November 8, 2024. Next review due October 1, 2025.

    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.

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      What is a credit union?

      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. 

      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 union business loans at a glance:

      • Financing for many types of US businesses, although start-ups and organizations with less than three years trading may struggle to qualify 
      • Good credit and financial history usually required
      • May offer lower interest rates and fees than other types of lender
      • Often provide a better, more personalized service than major banks
      • Some credit unions specialize in loans to underserved groups, including low-income and first-time borrowers and small businesses
      • Borrow up to $100,000
      • Repayment terms up to 25 years 
      • Interest rates start at 5%

      What are the different types of credit union business loans?

      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. 

      Popular types of credit union business loan include:

      Business term loan

      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.

      Business line of credit

      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 loan

      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 loan

      Commercial real estate loans can be used to buy, construct, or develop business property and land:

      • Commercial mortgage – Use a commercial mortgage to buy land or existing real estate over an agreement term of up to 25 years. 
      • Commercial bridge loan – Commercial bridge loans are flexible, short-term loans that organizations can use to cover a temporary shortfall in funding. Bridge loans can ‘bridge the gap’ between selling one property and buying another, or cover construction and renovation costs.
      • Construction loan – Use a construction loan to cover the cost or new-builds or the redevelopment or refurbishment of an existing commercial property.

      What are the pros and cons of credit union business loans?

      Like all types of financing, credit union business loans have their advantages and disadvantages:

      Pros:

      • Lower interest rates and fees – Although rates and fees vary from one institution to another, credit unions tend to offer lower interest rates and fees compared to major banks and other lenders. This includes term loans, lines of credit, credit cards, unsecured loans and real estate loans. 
      • Help for underserved borrowers – There are approximately 5000 credit unions in the US and about 10% of them are official community development financial institutions. CDFI certification is a US Treasury Department recognition of specialized financial institutions providing financial products to borrowers who traditionally struggle to obtain business funding. This includes low-income and first-time borrowers, including small businesses. 
      • Personalized customer service – Because credit unions are nonprofit institutions owned by their members, they’re generally known for their strong customer service and support. Members can usually access customer representatives in multiple ways — sometimes 24/7. Many credit unions also offer customized financial or business guidance services to their members.

      Cons:

      • Strict eligibility requirements – You’ll usually need strong credit, good finances and more than three years in business to qualify for a credit union business loan. 
      • Membership required – You must be a member to apply for a loan from a credit union. Membership may be restricted based on your location, place of employment or membership in particular associations or groups.
      • Smaller than banks – Because they’re typically much smaller than commercial banks, credit unions may offer fewer product options, be unable to provide very large business loans, and will usually have few branch locations. Credit unions may also have less sophisticated internet banking services, so you might not be able to apply for or manage your loan online.

      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.

      Where can I get a credit union business loan?

      Although there are thousands of credit unions across the US, 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.

      How to get a credit union business loan

      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 ID 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.

      Alternatives to a credit union loan

      If a credit union loan doesn’t work for you, there may be other ways to get the funding you need:

      Accounts receivable finance

      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

      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

      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

      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

      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. 

      Get started with Swoop

      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 Godfrey

      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 Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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      At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

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