For a Small Loan Fast, Try a Credit Union

Small business owners have always had a need for quick cash to cover unforeseen expenses. But they haven't always had a good choice when it comes to getting the money -- outside of a payday lender, a pawn broker, or that guy on the other side of town in a black leather raincoat.

But now they do: their local credit union.

The National Credit Union Administration recently amended its lending rules to allow credit unions to offer short-term small loans to their members. These "STS loans" are available in amounts from $200 to $600. The loan term may range from one month to six months, the application fee is $20, and the loans come with interest rates of up to 28 percent.

Small Loans Meet Urgent Need

Twenty-eight percent is significantly higher than the interest rate on a normal credit union loan. But it's a lot lower than the astronomical rates charged by payday lenders -- and that's what spurred credit unions to add these small loans to their range of services. The payday lending industry has exploded in recent years, and credit unions see opportunity in offering a more affordable option to the ever-increasing number of "unbanked" or "underbanked" (i.e., poor) Americans who for years have been forced to rely on check-cashing shops.

But STS loans can also be a good option for business owners who need a modest amount of money to cover a shortfall -- especially now, when banks simply don't bother with small loans.

Demand for STS loans increased 52 percent in the second quarter of this year, reports the National Credit Union Administration, and the number will no doubt rise, as credit unions market their small loans more actively -- and as more people get fed up with the incessant fee increases charged by large banks.

Credit Union Loans Can Mean Better Credit

In addition to the obvious advantages of a short-term small loan from a credit union, including friendlier service, and quicker and easier processing, an STS loan offers another perk: a better credit score.

Unlike payday lenders, credit unions report their small loans to the three major credit bureaus, which means that small business owners who pay back their loans on time can boost their credit score.

If you're not already a member of a credit union, there are several websites with which you can search for one that you may be eligible to join. Try Find a Credit Union, CULookup.com, or the National Credit Union Administration.