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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
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.Is it easier to get a loan from a credit union? ›
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.How much business credit do you need to get a 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.Do business loans run your personal credit? ›
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.Will a bank give you a business loan? ›
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.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.What credit score do you need to borrow money from a credit union? ›
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.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.How hard is it to get small business loan? ›
According to the Biz2Credit Small Business Lending Index, small business loans had a 13.5 percent approval rate from big banks as of April 2023. Small banks and alternative lenders approved more small business loans, with approval rates of 18.7 percent and 28.7 percent, respectively.Do small business loans look at personal credit? ›
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.
Does starting an LLC affect your credit score? Starting an LLC will not directly affect your personal credit score unless you decide to personally guarantee or cosign a loan for your company.How much of a business loan can I get with a 700 credit score? ›
You can borrow $50,000 - $100,000+ with a 700 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.Is it OK to use your personal credit score instead of business credit? ›
In the beginning, you may have to use your personal credit score to help establish your creditworthiness with potential lenders, even if you intend to borrow with business credit. However, it's important to keep your business and personal finances separate and develop a business credit profile.Which bank is best for business loan? ›
- 1) HDFC Bank Business Loan.
- 2) Axis Bank Business Loan.
- 3) ICICI Bank Business Loan.
- 4) Kotak Mahindra Bank Business Loan.
- 5) IDFC First Bank Business Loan.
- 6) SBI Business Loan.
- Payday Loan. ...
- No Credit Check Loans. ...
- Unsecured Personal Loans. ...
- Secured Personal Loan. ...
- Loan From a Friend or Family Member. ...
- Emergency Loans. ...
- Hardship Loans from Local Government. ...
- Hardship Distribution from Your 401(k)
- Prepare a cash flow forecast, and back it up with historical financial statements. ...
- Present yourself and your business well, this will also be reflected in your plans for any funding you receive. ...
- Produce a detailed (good) credit history. ...
- Show a track record of good money management.
Credit unions typically offer lower fees, higher savings rates, and a more personalized approach to customer service for their members. In addition, credit unions may offer lower interest rates on loans. It may also be easier to obtain a loan with a credit union than a larger bank.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 you be denied from a credit union? ›
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.What does your credit score have to be to get a 10000 dollar loan? ›
You will likely need a credit score of 640 or higher to get approved for a $10,000 personal loan. Most lenders that offer personal loans of $10,000 or more require fair credit or better for approval, along with enough income to afford the monthly payments.
Yes, you can get a personal loan with a 600 credit score — there are even lenders that specialize in offering fair credit personal loans. But keep in mind that if you have a credit score between 580 and 669, you'll generally be considered a “subprime” borrower — meaning lenders might see you as a more risky investment.Do credit union loans build credit? ›
Because credit unions are not-for-profit, they can offer members numerous benefits that can directly and indirectly build an individual's credit score.Is it easier to get business credit with LLC? ›
Getting Financing for Your LLC
One of the biggest benefits of establishing credit for your LLC is the ability to get access to more financing options. Some lenders simply won't lend to sole proprietorships; your business must be its own legal entity.
Build Credit for a New Single Member LLC
You can build credit as an LLC fairly simply once your business is established. Simply get credit accounts that will be reported to your business credit reports and pay them on time. These may include vendor accounts, business credit cards and small business loans that report.
Since business and personal credit files are separate, it's possible to establish strong business credit even if you have a low personal credit rating. The trick is to firmly distinguish your business credit from your personal credit before you start trying to build your business credit score.How much is the average loan to start a business? ›
According to the 7(a) and 504 Summary Report from the SBA, the average loan amount during the 2022 fiscal year for all types of 7(a) loans was $538,903. The average amount for all types of 504 loans was $995,029.How much can I ask for in a small business loan? ›
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.How many months is a small 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|
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.How do I get business credit? ›
- Register your business and get an EIN. ...
- Apply for a DUNS number. ...
- Open a business credit card. ...
- Establish trade lines with your suppliers. ...
- Pay creditors early. ...
- Borrow from lenders that report to credit bureaus. ...
- Avoid judgments and liens.
Instead of a personal credit score, the SBA uses the FICO Small Business Scoring Service (SBSS) when evaluating 7(a) loan applicants. The system calculates the business owner's credit bureau data, financials and other factors to produce a number between 0 and 300.Can I get a 20k loan with a 700 credit score? ›
You will likely need a credit score of 660 or higher for a $20,000 personal loan. Most lenders that offer personal loans of $20,000 or more require fair credit or better for approval, along with enough income to afford the monthly payments.What credit score do you need to start a business? ›
|Term loan||While banks and credit unions typically require a score of 670 or above, online lenders may only require a score of 580|
|SBA loan||Lenders offering SBA loans require credit scores between 620 and 680|
The highest personal loan amount you can usually find is $100,000. While you may qualify for a $100,000 personal loan with a 700 credit score, it's not guaranteed. If you have a lot of debt or an unfavorable debt-to-income ratio, some lenders may limit how much they are willing to loan.How to build business credit with ein number? ›
- Step 1 – Choose the Right Business Structure. ...
- Step 2 – Obtain a Federal Tax ID Number (EIN) ...
- Step 3 – Open a Business Bank Account. ...
- Step 4 – Establish Credit with Vendors/Suppliers Who Report. ...
- Step 5 – Monitor Your Business Credit Reports.
Examples of business credit include everything from bank loans to credit cards, with availability based on your credit history and score. Business credit is separate to personal credit, though some lenders will review your personal credit as part of a new business credit application.What are the disadvantages of a business using credit? ›
- They Can Be Expensive. Although they're not usually as expensive as a business credit card, business lines of credit have high-interest rates. ...
- There Are Wolves. ...
- Applying Is Time-Consuming. ...
- They Can Lead You Into Temptation. ...
- Limits Can Be Low.
Generally, borrowers need a credit score of at least 610 to 640 to even qualify for a personal loan. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 690.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 makes it hard to get a loan? ›
Credit Score and History
An applicant's credit score is one of the most important factors a lender considers when evaluating a loan application. Credit scores range from 300 to 850 and are based on factors like payment history, amount of outstanding debt and length of credit history.
Lenders will want to review both the credit history of your business (if the business is not a startup) and, because a personal guarantee is often required for a small business loan, your personal credit history. We recommend obtaining a credit report on yourself and your business before you apply for credit.How long does it take to get a business loan from a bank? ›
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.What are the 6 steps to getting a business loan? ›
- Calculate your requirements.
- Write a business plan.
- Consider repayment terms.
- Consult a financial adviser.
- Decide on a type of loan.
- Apply for the loan.
- Affinity Plus Federal Credit Union. Affinity Plus Federal Credit Union Superior Money Market Account. ...
- Alliant Credit Union. Alliant High-Interest Checking Account. ...
- Bethpage Federal Credit Union. Bethpage Federal Credit Union Certificate Account. ...
- Blue Federal 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.What are the disadvantages of a credit union? ›
- Membership required. Credit unions require their customers to be members. ...
- Not the best rates. ...
- Limited accessibility. ...
- May offer fewer products and services.
- Better interest rates on loans. Credit unions typically offer higher saving rates and lower loan rates compared to traditional banks. ...
- High-level customer service. ...
- Lower fees. ...
- A variety of services. ...
- Cross-collateralization. ...
- Fewer branches, ATMs and services. ...
- The biggest negative.
Experian, for example, uses a range from 0 to 999. A score of between 881 and 960 is good, between 961 and 999 your score is excellent.What happens if you don t pay back a loan from a credit union? ›
When you stop paying a personal loan, it could result in your account going into default, the balance being sent to collections, legal action against you and a significant drop in your credit score. If money is tight and you're wondering how you'll keep making your personal loan payments, here's what you should know.What is a low credit score? ›
In the VantageScore model, a score between 300 and 660 is considered a bad credit score, with scores below 500 deemed very poor. The VantageScore model breaks down its credit score ranges as follows: Very Poor: 300-499. Poor: 500-600. Fair: 601-660.
Does joining a credit union build credit? Joining a credit union can help build credit, provided you follow the right steps. For example, if you join a credit union with bad credit, you may want to consider getting a secured credit card to improve your credit score. This is also an option if you're new to credit.What are the benefits of a credit union? ›
- Better Rates. ...
- Lower Fees. ...
- Better Mortgage Accessibility and Service. ...
- Protected Deposits. ...
- Personalized Financial Services. ...
- Higher-Rated Customer Service. ...
- You're a member of a socially conscious community.
The largest credit union in the U.S. is Navy Federal Credit Union, with $156.65 billion in assets. As of 2022, the U.S. credit union industry has a market size of $103.3 billion. Approximately 130.2 million Americans are credit union members.How long do I have to be employed to get a personal loan? ›
In some cases, a lender may require you to have been at your new job for six months or even a year before you're eligible. Other lenders, though, will not require you to have been at your job for any specific amount of time before you apply for a loan.