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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.
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.
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%.
Credit unions may have limited availability, but offer many perks if you qualify for a membership.
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.
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.
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.
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.
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.
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.
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.
You’re eligible to become a member of Navy Federal Credit Union (NFCU) if you’re a:
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.
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.
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.
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.
Credit unions are often regional, so your options are likely very different from what’s available to a business across the country.
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:
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.
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.
Documents you may need include:
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.
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.
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.
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.
Use our table to compare loans available to you or read our best small business lenders guide.
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