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If you’re starting a business and need financing to get your venture running, credit unions are an excellent option for getting a business loan. Credit union business loans may be easier to qualify for than other types of loans. Before you select a credit union for a business loan, consider choosing one that meets your business’s borrowing needs by understanding common eligibility criteria, application requirements and loan features.
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7 Steps To Get a Business Loan From a Credit Union
Follow these steps to get a business loan from a credit union.
1. Determine Your Financing Needs
Before applying for a business loan from a credit union, determine your financing needs. Doing this first can help you decide how much you need to borrow, calculate how much you can afford in monthly payments and, ultimately, ensure you request the appropriate amount.
Start by creating a detailed business plan outlining your projected expenses and income. Alternatively, review your business’s existing business plan and financial records to identify your cash flow needs and determine how much financing you require to cover any gaps. Also, consider your preferred loan repayment period, as this will impact monthly payments and the overall cost of borrowing.
2. Check Your Eligibility
Evaluating your eligibility before applying for a loan with a credit union can help increase your approval odds. While your credit score plays a significant role in loan approval, it’s not the only factor lenders consider—especially with small business loans.
These are some of the common eligibility criteria lenders require:
- Credit score. Credit unions typically require a personal credit score of at least 680 to qualify for a business loan, but this requirement may be as low as 580. Requirements vary by financial institution, so check each lender’s credit score thresholds to evaluate your approval odds.
- Time in business. Most credit unions require a minimum of one to two years in business to qualify for a loan. However, some may be willing to consider newer companies if they have valid evidence of financial stability.
- Annual revenue. Different credit unions may require different levels of annual revenue. Generally, your business should have at least $100,000 to $250,000 in annual revenue to qualify for financing.
- Collateral. Depending on the loan amount, many credit unions require collateral to secure their funds. Collateral could be a real estate deed, a vehicle title or other valuable assets within your ownership. If you intend to take out a large business loan, evaluate your available collateral before applying.
Speak with a credit union representative to learn about specific lending requirements. Be prepared to provide detailed information about your business to get the most accurate assessment of your approval odds.
3. Research and Choose the Right Credit Union
Once you determine your financing needs and check your eligibility, research available credit unions to find the right one. Then, compare the financial institutions and consider these factors:
- Available loan amounts. Credit unions offer a variety of business loan types and amounts. Consider the minimum and maximum loan amount offered to ensure the credit union can finance your specific needs.
- Repayment terms. Most credit unions offer repayment periods from one to five years, depending on the type of loan. Check each potential lender’s flexibility to confirm you can repay the loan in a way that works for your budget.
- Interest rates. Interest rates vary at each financial institution, so compare multiple lenders before deciding. Many credit unions also offer promotional interest rates and special discounts on certain loans, so ask about these options.
- Additional fees. Most business loans come with additional costs, such as origination fees and closing costs. Evaluate the total cost of borrowing before committing to a loan.
- Customer service. Credit unions may offer a variety of customer service touchpoints, such as online banking and in-person branches. Consider the convenience of each lender’s services based on your needs.
- Reputation. Read online reviews and speak with other business owners to learn about their experiences with potential lenders. If you already have a relationship with a credit union, consider its business loan options first.
4. Gather Required Documents
The documents needed to apply and qualify for a business loan also vary by credit union. However, there are several documents that most financial institutions require. Organize these materials before applying to expedite the application process and ensure you can answer questions from your loan broker:
- Business plan. Your business plan is the foundation of your loan application. It should include an executive summary, market analysis, marketing strategy, financial projections and management team.
- Financial statements. Provide copies of your balance sheet, income statement and cash flow statement for the last two to three years.
- Tax returns. Gather your business’s federal and state tax returns for the last two to three years.
- Bank statements. Collect your business’s recent bank statements to provide evidence of cash flow and assets.
- Identification documents. Be prepared to provide copies of your driver’s license and other forms of ID, such as a passport or Social Security card.
- Cash flow projections. Create a detailed cash flow projection for the next year that outlines your expected income and expenses.
- Profit and loss statement. Provide a profit and loss statement for the last three years that includes your income, expenses and profits.
5. Become a Member of the Credit Union
To become a credit union member, you typically need to meet certain eligibility requirements, such as living in a certain geographic area or working for a specific employer. Once you determine your eligibility, fill out an application and meet any additional requirements such as depositing a small amount into a checking or savings account.
6. Submit Your Application
Next, prepare and submit your loan application. Loan officers at credit unions usually review applications within one to two weeks, but the process can take longer due to processing times or other factors.
7. Await Loan Approval and Closing
After submitting your application, a loan officer will review it and determine whether or not you qualify for financing. Depending on your financial situation and the strength of your application, you may need to provide additional documentation or even collateral to secure a loan. Respond to requests from your loan officer quickly to keep the underwriting process on schedule. Once everything is finalized, funds are typically available within five to seven business days.
Credit Union vs. Traditional Bank
Credit unions and traditional banks share many similarities, but there are a few key differences between banks versus credit unions. Banks are privately owned or publicly traded for-profit institutions. In contrast, credit unions are nonprofit institutions owned and operated by their members—often resulting in different services than those offered by banks.
Credit unions also tend to have more flexible eligibility requirements, lower interest rates, fewer fees and better customer service. That said, traditional banks often offer a wider range of financial products and services and have more physical branches for those who prefer in-person borrowing. Likewise, a traditional bank may be better if you want access to more advanced technology and tools like mobile banking and account management.
Pros and Cons of Credit Union Business Loans
When obtaining funding for your business, it’s important to weigh the pros and cons of credit unions and traditional banks before deciding.
Pros of Credit Union Business Loans
- Lower interest rates than traditional banks and online lenders
- Fewer fees
- Better customer service, including additional services like financial planning
- Flexible eligibility requirements
- Member ownership and a say in how the institution is managed
Cons of Credit Union Business Loans
- Limited lending capacity for larger loans
- Borrowers must meet membership eligibility requirements
- May have fewer branches and ATMs available than traditional banks
- Limited number of products
Find the Best Small Business Loans of 2023
Banks generally require that you have good to excellent credit (score of 690 or higher), strong finances and at least two years in business to qualify for a loan. They'll likely require collateral and a personal guarantee as well.How does a bank decide to give you a business loan? ›
Banks generally require that you have good to excellent credit (score of 690 or higher), strong finances and at least two years in business to qualify for a loan. They'll likely require collateral and a personal guarantee as well.How to convince a bank to give you a business loan? ›
- First, Build a Real Relationship. It is very difficult for any small business owner to walk up to someone to ask for assistance. ...
- Know the Numbers. ...
- Explain How You Made Your Forecasts. ...
- Show How They Get Their Money Back. ...
- Personally Guarantee the Loan.
Loan approval rates for small businesses applying to large banks are only 13.8%. Whereas the approval rates from small banks are up to 19%, and non-bank loans have an approval rating of 24.7%. Overall, all of these approval rates are much lower than the rates for SBA loans.What should your credit score be to get a loan from a credit union? ›
What credit score do you need to get a loan from a credit union? Generally, you'll want a credit score of at least 640 to qualify for a loan, but the credit score requirement will vary by lender. You can check your credit score for free through LendingTree's platform.How much of a business loan will a bank give me? ›
How much of a business loan you can get depends on your business's annual gross sales, creditworthiness, current debts, the type of financing, and the chosen lender. In general, lenders will only provide loans up to 10% to 30% of your annual revenue to ensure you have the means for repayment.What credit score do banks look for a business loan? ›
640 to 700: Business loan providers generally consider a credit score that falls somewhere between 640 and 700 to be good but not excellent. Generally, the minimum credit score for SBA and term loans is around 680.How can I increase my chances of getting a business loan? ›
- 1 – Get your credit score in check. ...
- 2 – Don't get multiple quotes from multiple lenders. ...
- 3 – Reduce negative balance days. ...
- 4 – Choose the right lender. ...
- 5 – Create a perfectly written business plan. ...
- 6 – Be open to alternative funding options.
- How you plan to use the money.
- The amount of money you are requesting.
- Your desired loan terms.
- How you plan to pay back your loan.
- And collateral to be used.
Step 3: Funding
The typical business loan from a bank or credit union can take weeks or months to process. Fast business loans, on the other hand, may be funded within a week of submitting an application. Some lenders are able to assess and underwrite loans in a matter of hours and fund them within a day.
Some lenders will not lend to companies that operate in certain industries. Some industries are high-risk, so some banks won't lend to companies in real estate, sales, or investing. Other common disqualifying industries include gambling, adult entertainment, dispensaries and cryptocurrency.
The easiest loans to get approved for are payday loans, car title loans, pawnshop loans and personal loans with no credit check. These types of loans offer quick funding and have minimal requirements, so they're available to people with bad credit.How long does it take a bank to approve a small business loan? ›
Expect to wait between two and three months for loan approval. The exception is an SBA Express loan. With this type of 7(a) loan, you should hear back about your application within 36 hours. Receiving your funds after approval may take several weeks.Why would a credit union deny a loan? ›
The most common reasons for rejection include a low credit score or bad credit history, a high debt-to-income ratio, unstable employment history, too low of income for the desired loan amount, or missing important information or paperwork within your application.Is it easier to borrow money from a credit union? ›
Also, credit union membership is smaller and better known to local branches, which helps facilitate establishing relationships with branch managers and loan decision-makers. That can make it easier to get the loan you need.Can you get a loan with a 500 credit score? ›
You can get a personal loan with a credit score of 500 if you have a steady source of income, but your choices are very limited. The best way to get a personal loan with a 500 credit score is to start by checking to see if you pre-qualify for loans from major lenders.How much should I ask for in a business loan? ›
When getting a business loan, my advice is to always try to apply for 10-20 percent more than the company really needs if you can qualify for the higher amount. Many times expenses are either more than anticipated or revenue takes longer to generate than expected.How much money do you need to make to get a business loan? ›
|Loan type||Annual revenue required|
|Commercial real estate loan||At least $50,000 annually|
|SBA loan||Varies by lender and loan type but must demonstrate an ability to pay back the loan|
|Term loan||At least $100,000|
|Lines of credit||At least $36,000|
Commonly offered by banks, business loans offer a much-needed infusion of cash to help cover most costs, though many small business owners find it hard to be approved.What credit score does an LLC start with? ›
You're aiming for a score of at least 75 in order to start getting favorable terms and taking advantage of having a strong business credit rating. The basic steps to start the process of establishing credit for your LLC are as follows: Get an EIN from the IRS. Register for a D-U-N-S number.
Simply applying and obtaining a business loan shouldn't impact your personal credit other than the soft inquiry at the time of application. Business loans do not typically show up on your personal credit report unless the bank reports it to credit bureaus as personal lending under your social security number.What credit score does a business start with? ›
For personal credit scores, the ratings range from 300 to 850, with most lenders requiring a minimum score of at least 600 for a personal loan. Business credit scores range from zero to 100 and most small business lending companies require a minimum business credit score of 75.Why are small business loans so hard to get? ›
Low Credit Score
Low credit scores are a common reason why it's difficult to get an SBA loan. Banks are risk-averse, and usually, require borrowers to have a FICO score above 650. They may consider both your personal credit score and your business credit score.
Poor credit history and low cash flow can prevent small businesses from securing loans. Before applying for a business loan, make sure your financial documents are in order and that you understand what lenders need from you.How hard is it to get a 50000 business loan? ›
It's often not difficult to get a $50,000 or $100,000 business loan if you have good credit and a solid business plan. There are hundreds of lenders throughout the U.S. that can provide unsecured small business loans.When asking for a loan What is the best reason to give? ›
The most common reasons to get a personal loan include emergency expenses, major purchases, home repairs, or milestones. A personal loan may be the right option if you have a good credit score, and your costs fall under these categories.How do you ask for a loan professionally? ›
- Be Honest And Open. It is crucial you're being honest about why you need the money. ...
- Have A Plan In Place. Coming up with a plan of attack to solve your financial situation is an essential item on your to-do list. ...
- Put It In Writing.
If you take out a small business term loan, you'll get a lump sum of capital that you'll pay back at a fixed interest rate with regular repayment terms. In most cases, these types of loans are repaid in five years and used to fund a specific investment for a small business.How many months is a typical business loan? ›
|Loan type||Repayment terms||Loan amounts|
|Term loans||Three months to 10 years||$5,000 to $1 million+|
|SBA loans||Up to 25 years||Up to $5 million|
|Traditional bank loans||Three to 10 years||$250,000 to $1 million|
|Business lines of credit||Six months to five years||$1,000 to $250,000|
It can be difficult to get a small-business loan if you don't have good credit and strong finances. It may also be difficult to get a loan if you are a new business. Although there are funding options available for startups and businesses with bad credit, these products typically have higher interest rates.
Most lenders perform a credit check when you apply for a business loan. In some cases, the credit check process might include a review of both personal and business credit reports and scores. Some lenders, like those on our list, require no credit checks.Will a business loan affect my credit score? ›
A business loan can affect personal credit. If you personally guarantee a business loan, your credit will be affected. If you're a sole trader or run a partnership, your finances will also be affected by a business loan. In such instances, your credit scores will reduce if your business delays payments or defaults.What is the hardest type of loan to get? ›
Unsecured loans are harder to obtain and interest rates can be higher, as lenders rely heavily on your credit and other financial information to determine your loan eligibility. The better your credit score, the better the interest rate you're likely to get.What is a hardship loan? ›
If your Universal Credit has been cut because of a sanction or penalty for fraud, you might be able to get some emergency money to help you cover household expenses like food and bills. This is called a 'hardship payment'. A hardship payment is a loan, so you'll usually have to pay it back when your sanction ends.How can I get money right now? ›
- Emergency savings. If you need cash for an unexpected expense, the ideal way to get it is from savings. ...
- Personal loans. ...
- Credit card cash advance. ...
- Home equity loan or HELOC. ...
- Gig economy/freelancing. ...
- 401(k) loans. ...
Your business can get an SBA 7(a) loan for any amount of up to $5 million. The loan has no minimum, which is good news for small businesses.What is a SBA Express loan? ›
SBA Express loans are the standard form of Express loan available to eligible small businesses operating in the U.S. or its territories. Approval times are much shorter than for most SBA loans, with the SBA responding to applications within 36 hours. Loans are available up to $500,000, with up to 50% backed by the SBA.Is it harder to get a loan through a credit union or bank? ›
Quick Approval. While a Credit unions may have many branch offices and thousands of members, credit unions often have more streamlined operations than banks. This makes applying for and receiving a loan easier.Can you be refused a credit union loan? ›
Even with relatively generous lending standards, a credit union may still turn down your loan application. If that happens, you still have some other borrowing options, and the approach that might do you the best could be pursuing a debt consolidation loan—borrowing funds to pay off your existing debt.Can a credit union reject you? ›
Yes. There are a number of reasons why a bank or credit union may refuse to open a checking account. For example: A history of writing bad checks.
Your local credit union should be one of your first stops when you're looking to borrow money, especially if you have a fair or bad credit score (689 or lower). Credit union personal loans often have benefits over those of other lenders, including: Typically lower interest rates.How long does it take to borrow money from a credit union? ›
If you get approved for a personal loan through a bank or credit union, you can expect to receive your loan money within one to five days—though some are faster than others. Alliant Credit Union, for example, provides same-day funding. Similarly, Wells Fargo usually disburses funds the following business day.How good does your credit have to be to get a loan from a credit union? ›
To qualify for a personal loan, borrowers generally need a minimum credit score of 610 to 640. However, your chances of getting a loan with a low interest rate are much higher if you have a “good” or “excellent” credit score of 690 and above.How big of a loan can you get with a 600 credit score? ›
You can borrow anywhere from a few thousand dollars up to about $50,000 with a 600 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.Can I get a loan with a 582 credit score? ›
You aren't likely to get a lender's best rates on a personal loan without a good credit score, but a FICO score of 582 should allow you to qualify for one. This is especially true when it comes to personal lending marketplace like Upstart that specialize in loans for consumers with less-than-perfect credit histories.Can I get a loan with a 524 credit score? ›
Credit Rating: 524 is considered a bad credit score. Borrowing Options: Most borrowing options are available, but the terms are unlikely to be attractive. For example, you could borrow a small amount with certain unsecured credit cards or a personal loan with no credit check, but the interest rate is likely to be high.What do banks look for in a business plan? ›
Your business plan is a tool banks will use when examining your character, capacity, collateral, capital, and conditions (the “five Cs of credit”). It's important for the bank to have a deeper understanding of your business to build credibility.How long does it take for a bank to approve a business loan? ›
Approval times vary by loan type and lender. You can expect to wait anywhere from 36 hours to 90 days, depending on the loan type, to find out if you are approved.Do banks look at personal credit when applying for a business loan? ›
Are you applying for a business loan? Commercial lenders may look at both your business and personal credit scores before they approve your application. If you have poor personal credit and you're wondering if it will affect your approval or the terms of your commercial loan, the answer is yes, it can.What do lenders want to see in a business plan? ›
Lenders want to see your future projections about what you expect to happen financially in your business. Discuss both what will occur without funding as well as what projected growth you expect should you receive financing. Be sure to include projections regarding job creation, market growth, and product development.
How much you should set aside in your business savings account depends on your business. Aim to save at least 10% of the profits you make every month, with up to 6 months' worth of operating expenses in reserve. This is especially true if your business is seasonal and receives most of its profits over a few months.Do you need a business plan to get a small business loan? ›
Get a small business loan
To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you'll need to ask for, and will help the bank know they're making a smart choice by giving you a loan.
Some business loans can take weeks or months to be approved. SBA loans can take up to 90 days to receive funding after an application. But fast business loans could offer funding in as little as 24 hours.How fast can you get approved for business credit? ›
It can take anywhere from a few minutes to a few weeks to get a business credit card, though on average it shouldn't take more than 10 to 14 days. In many cases, a business may receive “instant approval” for a business credit card, but it may take longer to come to a decision other times.Can my business get a loan if I have bad credit? ›
Yes, it is possible to get a small business loan even if you have bad credit. This is because your credit score doesn't matter as much as the overall financial health of your business. Many lenders require a minimum credit score of 500, at least six months in business, and more than $30,000 in annual revenue.What is a good credit score for business? ›
Businesses are ranked on a scale between 101 to 992, with a lower score correlating to a higher risk of delinquency. A good Business Credit Risk Score is around 700 or higher.What 4 things do lenders look at? ›
Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.What does a lender look at before granting credit to business? ›
Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.What are the three C's that lenders look for? ›
Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.