Breaking The Bank

The Credit Union Option

If you don't want to turn to a finance company, credit unions are also excellent sources of small-business capital.

"We're a niche player in the market," says Daniel A. Mica, president of the Credit Union National Association. "We represent 12,000 credit unions, and only about 15 percent offer commercial loans."

Although most people associate credit unions with mortgage, car and personal loans, these institutions are also small-business lenders. In fact, many credit unions were organized to help select groups of entrepreneurs.

Take Alternative Federal Credit Union in Ithaca, New York, for example. It was established in 1979 by the Alternative Fund, a group of community business owners, and members must be connected to this organization. According to manager Bill Myers, much of the credit union's small-business financing is micro-lending, with an average loan size of $12,000. Its lending is also often coupled with free technical assistance.

"Our loan officers are trained to look at financial statements and listen to [business owners] to see if it's a loan that can help a business," says Myers. "They devise a solution and, in effect, become a business partner."

In contrast, Citizen Equity Federal Credit Union (CEFCU) in Peoria, Illinois, takes a more traditional approach to business lending in the nine-county region it serves. In addition to offering secured loans, it provides letters of credit, offers revolving lines of credit and is an SBA lender.

While CEFCU's loan requirements don't differ from a bank's, their local ownership and decision-making ability give them a better understanding of the community and its economics, maintains Gil A. Johnson, CEFCU business loan manager.

Even more important, Johnson says credit unions can more easily and quickly respond to the needs of their constituents. CEFCU is a perfect example. The institution began lending to small businesses in 1994 because of requests from members.

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This article was originally published in the March 1998 print edition of Entrepreneur with the headline: Breaking The Bank.

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