If you’re looking to save on interest for your next business loan or you don’t need a large amount, a credit union could be the right fit. But while inexpensive, these nonprofit lenders tend to be low-tech and serve a limited community. This makes credit unions best for micro businesses looking for a long-term relationship with a local lender.
How credit union business loans work
Credit union business loans work by offering low-cost financing to small businesses or owners who are credit union members.
Credit unions are not-for-profit financial institutions owned by the people who use their services. This gives credit unions lower overhead costs than for-profit lenders and allows them to offer some of the most affordable rates available. But it also means that you or your business must join the credit union before taking out a loan.
Because credit unions are often small operations, most only serve a few states. Many also don’t offer business financing — and those that do often only offer small sums, sometimes no more than $50,000.
Is the maximum rate really 18%?
The National Credit Union Administration caps rates at 18% on all loan products from federal credit unions, including business loans. But this doesn’t apply to state credit unions, which may have higher or lower rates, depending on local regulations.
The maximum rate also only applies to interest, not the annual percentage rate (APR). So, if your business pays an origination fee, your APR may be higher than 18%.
Pros of credit union business loans
Credit unions may have limited availability, but offer many perks if you qualify for a membership.
- Highly competitive rates. Federal credit unions legally can’t charge more than 18% interest on their loans, and many others charge even less.
- Fewer fees. Credit unions often charge fewer origination and application fees than banks or online lenders. Some don’t even charge late or prepayment penalties.
- Affordable small-dollar financing. Looking for a loan under $5,000 without astronomical rates? A credit union could be your best bet.
- Many are SBA lenders. Many credit unions are SBA-preferred lenders, which could help you land a low-cost, government-backed SBA loan.
- Membership perks. Many credit unions offer workshops and other free resources to support members in their small business operations.
- Supporting your community. Most credit unions are local organizations that serve the community around you. Borrowing from one is an easy way to give back and empower others to do the same.
Cons of borrowing from a credit union
Credit unions have a great deal of benefits, but it’s not the best choice for every business — especially if you need a large dollar amount.
- Limited availability. Unlike banks, credit unions have membership requirements. And if you don’t live or work in the area that the credit union serves, you’re probably not eligible.
- Hard to qualify. Many credit unions require great credit for business loans. And startups won’t likely qualify, as many credit unions require businesses to be at least two years old.
- Large amounts hard to come by. Many credit unions lack the resources to fund projects over $50,000.
- Complicated applications. If you’re not already a member, your business typically has to fill out two applications to apply for financing: one for membership and one for the loan. And these can be highly detailed.
- Poor customer service. One of the top customer complaints against credit unions is low-quality customer service. It can often be hard to contact a representative or correct a mistake.
8 credit unions that offer business loans
Credit unions available to you are largely dependent on where you live, though there are some credit unions that serve businesses in all 50 states.
1. America First Credit Union
American First offers simple business loans with no minimum amount and a quick approval turnaround. But the membership is limited to six states: Arizona, Idaho, Nevada, New Mexico, Oregon and Utah. And while this federal credit union’s rates stop at 18%, it’s not clear where they start.
2. Bethpage Federal Credit Union
Bethpage Federal Credit Union (BFCU) offers commercial real estate loans, vehicle loans, lines of credit and term loans. It states that membership is open to anyone that opens a $5 savings account and is a US citizen or permanent resident. BFCU also offers competitive business account rates, including a free checking account with interest.
3. Boeing Employees’s Credit Union
Provided your business has at least $10,000 in eligible assets, you may qualify for a business loan through Boeing Employees’ Credit Union (BECU). It offers secured term loans and has a few other business financing options if you can’t provide security. But its application requires multiple documents and information about your business, which can make applying a tedious task.
4. Consumers Credit Union
Consumers Credit Union offers commercial mortgages, secured lines of credit and equipment financing. There isn’t much information available on the site in terms of rates or requirements, though — only that your business has been operating for at least two years, is located in Wisconsin or Illinois and you’re a Consumers Credit Union business member.
5. Lake Michigan Credit Union
Lake Michigan Credit Union might only have locations in Michigan and Florida, but its business loans are available nationwide. It offers secured term loans with very competitive rates — oftentimes several points below where APRs start at other credit unions. Business owners need to have good credit and enough collateral to back the amount you need to borrow.
6. Navy Federal Credit Union
You’re eligible to become a member of Navy Federal Credit Union (NFCU) if you’re a:
- Military member on active duty
- Department of Defense employee
- Household member to anyone on this list, and more
To be eligible for a business membership, all individuals with 25% ownership or more must be NFCU members and all accounts must be in good standing. NFCU offers multiple business loan options, including secured term loans, business line of credits, and commercial real estate loans.
7. Northwest Federal Credit
Northwest FCU offers loans to businesses in all 50 states — and they’re available to startups, too. Loan options include term loans, business lines of credit, real estate loans and SBA loans. However, expect to need a high credit score to qualify. It also charges a one-time application fee of around $250.
8. Sound Credit Union
Sound Credit Union offers some competitive deals with no fees — not even late fees. The downside is that it’s only available in Washington State. Businesses also must be at least two years old, and owners need a credit score of at least 700 to qualify.
How to get a credit union business loan
The application process for a credit union business loan may be a little tougher than alternative business financing options. Most businesses follow some version of these steps to get a credit union loan.
1. Locate a credit union that offers business loans
Credit unions are often regional, so your options are likely very different from what’s available to a business across the country.
2. Contact the credit union directly
There’s a good chance you won’t be able to find all of the information you need on the credit union’s website. Calling customer service or stopping by a local branch might be the only way to find out if your business is eligible for membership and financing.
Lending requirements for a credit union business loan may include:
- Good credit, possibly 700+
- At least two years in business
- At least $50,000 in annual revenue
- No recent bankruptcies
Is it hard to qualify for a business loan with a credit union?
It may be easier to get a credit union loan than from a national bank, but online lenders may be more flexible when it comes to new businesses or bad credit.
Some credit unions only require the owners to be members, while others require your business to sign up for membership as well. Membership is often limited to residents of a few states, and a credit union may serve a specific area, industry or demographic, such as service members, students or employees in a specific industry. You can typically apply for a loan and membership at the same time, though that isn’t always the case.
Because of the restrictions on membership and the small footprint, there isn’t much competition for credit union business loans. Only 36% of small businesses loan applications went to credit unions in 2021, according to the Federal Reserve. And only 13% of small businesses used financial services from a credit union.
3. Become a member
While many credit unions allow you to submit your membership and business loan application at the same time, some may ask you to become a member first. Often, starting a membership requires opening a checking and savings account.
In many cases, only the business owner must become a member to be eligible for a business loan. But credit unions that offer a suite of business services may require the business to join as well. Typically your business must be located in or otherwise serve the local community to qualify.
4. Gather your documents and apply
Documents you may need include:
- Personal and business tax returns.
- Business financial statements.
- P&L statements.
- Business license or certificate.
- Loan application history.
- Business plan and history.
- Personal resume.
How the application actually works varies between credit unions. Some have a quick online form, while others might ask you to set up an appointment to apply in person.
5. Accept offer and receive funds
The turnaround time for a business loan varies widely, and if you’re going the SBA route, it may take weeks or months.
If you’re approved and accept the offer, know that credit unions have different ways of disbursing funds. Some might deposit your money into your business’s account with the credit union, while others might allow you to transfer the money to the bank account of your choice.
Credit union vs. bank loans
Unlike a bank, credit unions require a membership — either before or during the application process, which typically involves opening a business checking or savings account.
While availability may be limited, credit unions can often offer smaller businesses more competitive rates than they might find at a bank — especially newer businesses. Banks typically have lower starting rates, but have no limits on the maximum interest rate.
Additionally, many credit union business loans also don’t have any application or origination fees, which come standard with most other types of business financing.
But it’s not all roses. Many credit unions don’t have the funds to invest as much in technology or customer service as other lenders, and many don’t even have an online application. And since they’re such small operations compared to big banks, credit unions usually don’t have the reserves to fund large projects.
Compare credit union alternatives
If the credit unions in your area don’t offer what you need for your business, there are many other alternative lenders. Banks don’t require a membership and may offer larger loan amounts, and online lenders may offer faster funding times and may be more friendly to startups. Another lender may be better if you want funds to acquire another business.
Use our table to compare loans available to you or read our best small business lenders guide.