Local Credit Union Great Source for Small Business Loans

A lot of small business owners who began their entrepreneurial journey with a full tank of capital and a smile on their face are now sputtering along on fumes, hoping to find someplace where they can get the credit they need before their operations shudder to a halt.

At big banks the rates are too high, the requirements too onerous, and the people behind the faux-maple desks just plain unwelcoming.

At the other end of the spectrum, nonbank alternatives such as online lenders, peer-to-peer lending sites, pawn brokers, and check cashers are all gaining share in the credit market, but the loan amounts they offer tend to be on the low side, plus a lot of small business owners consider them too exotic (or too embarrassing).

Credit Unions Growing Fast

So what's the solution for small business owners scanning the landscape for a place to refuel? A lot of owners -- and other Americans -- are meeting their monetary needs just around the corner, at their local credit union. The National Credit Union Administration reports that in the second quarter of 2011, membership increased and total loans were up. Particularly popular now are short-term small loans, which rose 52 percent in the second quarter. Since 2007, the NCUA reports, membership in U.S. credit unions has climbed from 86.8 million to 91 million.

Credit unions are member-owned nonprofit institutions. A lot of individuals are now moving their accounts from a bank to a credit union because they're upset at the tickertape parade of new fees banks are rolling out -- for everything from making a deposit to using a debit card. A lot of business owners are switching for the same reason. At a credit union, accounts don't come with fees.

Credit unions do come with employees who actually seem happy to see you when you walk in the door. That's because credit unions were originally set up to serve individual members of a community, so they're less formal and more personal.

Credit unions are still focused primarily on individual customers, but lately they have been making more and more small business loans. They're allowed to make total business loans up to 12.25 percent of their assets, although loans of $50,000 and under don't count against that cap. The average business loan made by credit unions in 2007 was $180,710. Credit unions also make Small Business Administration-guaranteed loans, or SBA 7(a) loans, and the average size of these is under $100,000.

Built to Serve Smaller Customers

If you're a small business owner, those loan averages should catch your attention. They tell you that credit unions are interested in making the smaller loans that big banks don't want to bother with. And they make loans at significantly lower interest rates, because they're more concerned with keeping members happy than in maximizing profits.

Credit union loans come with many other advantages. They're insured at no cost, there are no hidden fees, repayment terms are more flexible, and there are no penalties for early repayment of the loan or for larger, lump-sum payments. And the application process is easier.

In addition, credit union accounts come with no monthly fees and no minimum balance requirement. The credit cards they issue usually have lower interest rates and higher spending limits.

There are a couple of drawbacks, but they're fairly minor. Credit unions have fewer branches and smaller ATM networks. And they don't spend a lot of resources developing smartphone apps for mobile banking.

You must also be a member of a credit union's specific community, although you should be able to find one you're eligible for, because different credit unions define their community by everything from profession to family members to geographic location.

If you're interested in finding a credit union, check out CULookup.com or Find a Credit Union.