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With favorable rates, many funding options and strong customer support, a credit union can be a good choice for a business loan. Yet just 8% of small-business owners applied for financing at credit unions, according to a 2022 report from the Federal Reserve.
That may be because credit unions have some unique characteristics. For example, many have fewer branches and technical resources than other lenders. Plus, to qualify for a credit union business loan, you'll have to meet strict financial and membership requirements.
Here's what to know if you want a business loan from a credit union.
What is a credit union?
Credit unions are not-for-profit cooperative financial institutions owned by their members. They often offer many of the same services as banks but return their profits to their members through dividends, lower interest rates and other benefits. Credit unions typically have membership requirements based on address, place of employment or membership in certain associations, institutions or groups.
Should you get a credit union business loan?
You'll typically want the business loan with the lowest interest rate, and a credit union may be a strong contender. But other facts, such as funding time, may matter to your business. So here are some pros and cons to help you understand if a business loan from a credit union is right for you.
Credit unions tend to offer low-interest rates. Credit unions and banks tend to offer better business loan interest rates. But a National Credit Union Administration comparison of average savings and loan rates for credit unions and banks shows credit unions have a rate advantage in many product areas. Rates vary from lender to lender, but if you have strong personal and business financials, you’ll likely get a good deal at a credit union.
Many credit unions are community development financial institutions. This can increase the odds of loan approval for some applicants. CDFI certification is a U.S. Treasury Department recognition of specialized financial institutions providing financial products to low-income and first-time borrowers, including small businesses. There are over 200 credit union CDFIs.
Credit unions tend to be smaller than banks. Of course, not all credit unions are small. Still, the average credit union has $50 million in assets compared to $318 million in assets for banks on average, according to the Credit Union National Association. Accordingly, many credit unions may not have as many branches as some banks. However, the existing branches may offer better opportunities to meet with a human about your loan.
You have to be a member. Credit unions have fields of membership that determine who is eligible to join. Whether you can open an account or borrow money from them depends on whether you meet the membership criteria.
Some credit unions may not have all the latest technology. Small institutions (including small banks) may not have the latest digital features, so you may be unable to apply for or manage the loan process online.
Where to get a credit union business loan
There are thousands of credit unions in the United States; use the National Credit Union Administration's website MyCreditUnion.gov to find one in your area. Here are a few examples of offerings and membership requirements for some large credit unions.
Navy Federal Credit Union
Navy Federal Credit Union is the largest federally insured credit union by total members and assets, according to the most recent data from the National Credit Union Administration.
Business loans available: Real estate loans, lines of credit, term loans, vehicle loans.
Membership eligibility: You or one of your family or household members must have ties to the armed forces, Department of Defense or National Guard.
Learn more about Navy Federal business loans.
Boeing Employees' Credit Union
Boeing Employees' CU is also one of the largest credit unions in the United States. It is headquartered in Tukwila, Washington.
Business loans available: Term loans, business vehicle loans, lines of credit, commercial real estate loans.
Membership eligibility: Anyone who lives, works, worships, operates a business or goes to school in Washington state or certain counties in Oregon or Idaho, as well as anyone who has worked or volunteered for Boeing. Alumni of the University of Washington and Washington State University are also eligible.
America First Federal Credit Union
Based in Riverdale, Utah, this credit union has over $17 billion in assets and more than a million members. It's also one of the most active Small Business Administration 7(a) lenders in the United States.
Business loans available: SBA loans, lines of credit, business vehicle loans, equipment loans, unsecured capital loans, acquisition and franchise loans, and commercial real estate loans.
Membership eligibility: Live, work, worship, volunteer or attend school in specific areas of Utah, Nevada, Arizona, Idaho, Oregon or New Mexico; be involved in the food industry in Utah; have family that qualifies.
How to apply for a credit union business loan
The process of applying for a small-business loan is somewhat similar, no matter what type of lender you choose. But if you want to apply for a business loan at a credit union, in general, there are four things you'll need to provide:
Membership details. You'll need to join the credit union or show that you're eligible to join. The credit union's website will detail its field of membership, so you'll know if you're eligible.
Information about your business. This typically includes basic information such as the business's name, address and tax ID number, as well as more specific data. You may need to provide a business plan and details about how you'll use the loan.
Financial statements for you and your business. These may include financial statements from your accounting software that show your business's annual revenues, costs and profits, tax returns and bank account statements for the owners and the business.
Details about the owners. You may need to provide the names, Social Security numbers and addresses of anyone who owns more than a certain percentage of your business.