The Bank in Your Backyard

The Credit Union Option

The Credit Union Option

Credit unions may be another source of loans during tight credit times. Less than one-third of credit unions make business loans, but they are the fastest-growing loan product at those that offer them, shooting up 10 percent last year, says Pat Keefe, vice president of communications, of the Credit Union National Association.

Credit unions are financial institutions formed by an organized group of people with a common bond. Credit union "customers" are actually members who own shares of the credit union and pool their assets to provide loans and other financial services to one another. Unlike banks, credit unions are not-for-profit, owned by members and mostly operated by volunteer boards.

Business owners usually need to be credit union members to obtain loans. Membership criteria vary, but most credit unions allow the immediate family of members to join. Being a member of some churches, social, professional and civic groups may give you entree to a credit union. And more than one-third of credit unions have "community charters," which allow them to serve specific geographic areas.

To get a loan from a credit union, business owners need to be well-prepared. "Credit unions, as cooperatives, are very concerned about limiting risk to their member-owned, cooperative institutions," Keefe says. "As a result, particularly in business lending, credit unions are careful lenders--they have rigorous underwriting standards and rely on experienced staff in business lending to guide their decisions."

Not surprisingly, credit unions report fewer charge-offs than banks: 0.59 percent vs. 2.36 percent in 2009. However, they are interested in making loans. CUNA surveys show that credit unions become involved in business lending to offer more services to members, to respond to interest from members and to stimulate loan growth.

The average amount of a credit union business loan is $220,000, and credit unions are limited in the amount of business loans they can make, which may not exceed 12.25 percent of their asset base. Legislation is pending in the House of Representatives and Senate that would increase that cap to 25 percent.

General business services tend to be limited at credit unions, Keefe says. Most offer basic deposit services such as free or low-balance checking, savings accounts and money market accounts. However, less than half offer specific business checking or premium business checking options. Services such as sweep accounts and account analysis indicate that only a few credit unions are serving larger, more complex businesses.

To find a credit union near you and one that offers business loans, go to

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Gwen Moran is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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This article was originally published in the July 2010 print edition of Entrepreneur with the headline: The Bank in Your Backyard.

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