Community Banks & Credit Unions

Like pillars of the neighborhood, community banks have traditionally been key allies of small business. Despite their small size (typically under $1 billion in assets) , they make a disproportionate share of small business loans. However, the number of small banks has been declining, from around 14,000 in the mid-80s to around 7,000 today.

Even so, smaller banks are more likely to lend you money then that global bank branch. That same can be said of credit unions—non-profit financial cooperatives owned by their members/depositors. Credit unions offer the same services as banks, including small business loans, but often have a community focus or mission. As non-profits, their earnings are returned to their members in the form of lower interest rates on loans, higher interest on deposits, and lower fees. (Credit unions are currently restricted to lending up to 12.5% of their assets)

Small business loan approval rates for 2014:

Big banks 20%

Small banks 50%

Credit Unions 43%

Pros:

  • Low interest rates (currently averaging 7%)
  • Long loan terms (multi-year)

Cons:

  • It can take several weeks or months for a bank to approve your loan and hand over the money
  • To get a bank loan, you typically must have two years+ of operations, excellent credit and collateral
  • Banks are tightly regulated, which limits their flexibility

Resources:

The National Credit Union Association offers a credit union locator and other helpful info at http://www.ncua.gov/ncuamapping/pages/ncuagovmapping.aspx

The Independent Community Bankers of America (ICBA) offers a similar tool to find a community bank near you, at http://www.icba.org/consumer/BankLocator.cfm