Building a new business is difficult enough, but with today’s rigid lending standards, entrepreneurs are having to do more than complete a few forms to secure financing.
For example, Bank of America cut Barbara O’Connell’s limit on a business credit card she used to purchase supplies and office equipment for her health-care information service company.
Although O’Connell had been a loyal customer, making all her payments on time, Bank of America wouldn’t work with her. Frustrated not only with the limit reduction but also with rising bank fees, O’Connell sought help from a credit union who welcomed O’Connell and her business partners with open arms.
"They have everything we need--business checking and credit card transaction services if we need that. We're working on opening up a credit card with them now," O’Connell told Entrepreneur magazine in 2010.
Since then, a growing trend of entrepreneurs and small business owners are leaving their bank and heading to a credit union for assistance.
"Because credit unions are member-owned financial cooperatives, we don't have to make a lot of money," says Mike Schenk, VP/Economics and Statistics at CUNA. "You'll often find interest rates and fees lower than at commercial banks, and because the small-business borrowers are members, the credit union leadership is often likely to have more flexibility in lending to them."
Hot Businesses Finding Loans at a Credit Union
In an age where celebrity chefs dominate a good portion of TV viewing; restaurants, specialty food companies and even food trucks have become popular start-up businesses.
However, like many start-ups, restaurant and food business customers find it nearly impossible to be heard at a bank.
Restaurant owner, Patrick Johanns of Jefferson City, Missouri secured a business loan through Conservation Employees’ Credit Union ($86.5 million, Jefferson City, MO) when banks wouldn’t even consider him as a loan candidate.
“The banks didn’t think it was do-able,” he says. “Conservation Employees’ knew me and my history, and had helped me buy my house, so they did the loan.”
After being open for a few months, Johanns’ restaurant, Pasta Fresca is a success--thanks to the opportunity provided to him by his credit union.
“Credit unions should be able to do more business lending,” he adds. “It’s made a big difference for me. Without them, I probably wouldn’t be open today.”
Credit unions in Canada are offering specialty “Remarkable Micro-Loans,” which provide funding for sprouting companies owned by Gen Y’ers. The initiative challenges entrepreneurs between the ages of 18 to 29 to present their business proposal to one of the 45 participating credit unions throughout British Columbia. Accepted proposals are matched with a micro-loan of up to $5,000.
Last month, Andrew Verge was able to realize his dream of owning a food truck when he was granted a micro loan through Valley First (a division of First West Credit Union, $6.6 billion, Penticton, BC). Spud Brothers Food Services opened to a band of hungry fans and one enthusiastic owner.
“I have always liked the idea of doing something that no one else was doing, delivering food right there to the customer, at the beach, at the park, or at the arena,” Verge said in a First West press release. “The micro-loan program, through Valley First, has provided the opportunity to do that.”
Roger Houle, AVP/Commercial Banking at the credit union explains how Spud Brothers demonstrates the need for credit unions and entrepreneurs to join forces.
“We are community driven and we are focused on ensuring that the small businesses in our communities succeed,” he said. “We measure our success on their success. It’s exciting to get involved with enthusiastic, well-prepared, local entrepreneurs and help them realize their business opportunities.”
Credit Unions Back Local Businesses with Financing for Their Own Customers
As Senate Bill, S. 2231 hangs in the balance (if passed would allow credit unions to move beyond commercial lending of only 12.25% of the credit union’s assets to 27.5%), credit unions continue to find other ways to support the local entrepreneur.
Heritage Trust Federal Credit Union ($415 million, Charleston, SC) offers MerchantConnect, a special program to local businesses that allows the company to offer financing to customers. Businesses like roofers, HVAC professionals, dentists and pool builders can increase their sales potential by providing the ability to offer product and project financing to many of their customers. Program participation comes at no cost to the business and companies can apply online through the Heritage Trust website.
Whether you have wanted to start a food truck business or have a business idea you want to pursue, find a credit union to discuss finance options.