Getting a small business loan is a difficult process. It requires research, gathering documentation, working with a lender to submit multiple forms, and more. Today’s entrepreneurs take an average of 25 hours to complete a single application, according to a Harvard Business School study. Before you invest time on your search for the right funding, take time to compare credit unions vs. banks.
Most of the time, business owners turn to large traditional banks for their business lending needs. Sometimes they already have personal checking and savings accounts with them. Other times, they are simply the first that come to mind. But banks aren’t the only option out there, even though they might be the most obvious. After all, it’s often these banks that create the 20+ hour application process that keeps business owners up at night.
What is a Credit Union?
Credit unions are non-profit financial institutions owned by their members, rather than private investors or shareholders. Because of this, credit unions can be established by teachers, first responders, or other community groups to offer financial services that meet their unique needs. This makes credit unions an appealing choice for many business owners. They may offer specialized and localized benefits for members of their community that banks may not.
1. Customer Service
Personalized engagement with members is an area where credit unions shine. Unlike many banks, which are typically very large, credit unions are local or regional and therefore employ smaller teams. This creates a more personalized approach, and often a more positive application experience. Surely, credit unions may still uphold specific and rigid approval requirements. But you can be confident you’re not just another number in a massive queue. When you have questions, you’ll likely be met by a human on the other end of the phone. With banks, endless automated phone trees or answerless website help pages are more common.
2. Loan Rates
Arguably the most important factor in finding and applying for a small business loan is getting the lowest interest rate possible. When growing your business, the last thing you need are high interest rates that drives your payments up. This can make it more difficult to manage your regular expenses like payroll, supplies, or inventory. Due to lower overhead and a goal to provide the very best benefits for members, credit unions are known for offering the most competitive interest rates — sometimes as much as 1-2% lower than traditional banks.
3. Product Offerings
While some credit unions have a smaller breadth of offerings, most come with a full range of financial products and services, from standard checking and savings accounts, through all types of business lending options, from term loans, to equipment loans, and even real-estate loans. But what sets credit unions apart is their tendency to specialize in their offerings, with different products and services targeted to specific business types. Credit unions may also offer specialized expertise that can help business owners navigate their unique industries as they look to grow — making them a hidden gem for ambitious entrepreneurs. Big banks, on the other hand, don’t usually bring this level of specialization and instead offer a standard set of services for a certain class of client.
4. Purpose Over Profits
Mission and impact are huge factors when comparing credit unions vs. banks. As non-profit organizations, credit unions are fundamentally driven by a different mission than banks. With deep roots in their community, they design their service offerings to uplift and support the interests of their members and the local community. They also regularly give back in non-monetary ways, like by providing financial literacy training to members, by connecting with local schools to help students learn to manage money, or even by offering grants and scholarships to local students or organizations. While banks still design their services and benefits to also provide a positive customer experience, the end goal will always be maintaining profits for shareholders or owners.
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