Most business owners gravitate towards banks when looking for a financial institution to support their banking, lending, and credit card needs. But banks are not the only option, credit unions are pulling out the stops to attract small business owners and entrepreneurs through low-interest rates, value-add services, and a community-centric approach.
Here are a few reasons why many observers and industry experts consider credit unions the winning choice for small business.
What is a Credit Union?
Credit unions are member-owned, not-for-profit financial cooperatives that provide savings, credit, and other financial services to their members. Credit unions pool member savings and shares to finance their own loan portfolios as opposed to relying on outside capital. Unlike the one-sided nature of traditional banking relationships, credit unions return surplus income to their members in the form of dividends. In turn, members benefit from the following:
- Higher returns on savings
- Lower rates on loans
- Fewer fees
Don’t mistake credit unions with other non-profits, in the credit union world “not-for-profit” means that these institutions service members rather than focus on maximizing profits.
Why are Credit Unions a Good Fit for Small Business?
Because credit unions are member-owned, volunteer-directed and not-for-profit, they focus on providing affordable services that serve the well-being of members – not just growing their bottom line. This earns them legions of satisfied customers.
Furthermore, credit unions place a big emphasis on giving back to the community which includes creating opportunities for small business growth.
One of the biggest draws for small business are the higher saving rates and lower loan rates offered by credit unions. According to the National Credit Union Administration, loan growth at credit unions outpaces banks (at 9.8% in the second quarter of 2014, compared to the 4.9% increase in loans outstanding at banks). Most credit unions also steer clear of the higher balance requirements of traditional banks and focus on trying to keep fees for products and services as low as possible.
How much can you save? Jeff Yoder made the switch and discovered he could save over $1,000 a year by moving his business accounts to a credit union. Yoder now enjoys “…no monthly checking fees, no annual credit card fees, and dramatically lower merchant account and credit card processing fees.”
Credit union members can also take advantage of the CO-OP ATM network which provides access to over 30,000 ATMs and a concept known as shared branching which allows members to use the services of other credit unions across the country, so you’re not stuck for assistance when you’re out of town. Not all unions offer this service, but for those who do it offers parity with national bank chains in terms of convenience.
Credit Unions are Stepping Up There Game
Banks don’t have a great reputation, especially among millennials. In response, credit unions are upping the ante and becoming increasingly tech savvy and service-oriented.
Writing for Inc.com, Vince Passione, finds that credit unions are rolling out services such as free classes on computer basics, credit repair, money management and other life skills. In Florida, for example, the Broward Bank offers popular workshops and happy hours for entrepreneurs and startups in addition to online banking, remote deposit and capture products.
“Credit unions excel in the categories important to millennials– superior service and respect, ease and convenience, lower interest rates and a source for understanding the basics of personal finance. A whopping 81% of millennial credit unions members said that their institution provides an ‘outstanding customer experience’ compared to 59% of bank customers responding so for their banks,” said Passione.
How Do I Join?
Well, for one you can’t just walk into any credit union and hope to become a member. According to MyCreditUnion.gov, each credit union serves a “field of membership”, so you may be eligible to join one based on your employer, geographic location, family connection (most credit union’s allow member’s families to join), or membership in a group such as a church, school, labor union, etc.
Community credit unions offer a little more flexibility and are open to individuals who live, work or worship in a particular community.
Find a credit union near you using this Credit Union Locator.
The Bottom Line
Do your research and check out your options. Each business has unique needs. Ask your bank and local credit union what they can do for you from all angles – convenience, range of core services, interest rates, savings rates, rewards, add-on services, and quality of relationship. If you are already banking somewhere else, make a point of finding out how easy or difficult it is to make the switch.
In our next post, we’ll make the case for why a traditional bank relationship still has some positives for small business owners.
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