Credit Unions: Another Option for Start-Up Small Businesses
You have a great idea for a small business, and there’s a need in your community or online for your products and services. Congratulations on pursuing your dream! However, you need more than a great idea and potential customers. You’re going to need money as well. Start by learning about numerous funding options for small businesses then make a decision based on the options that are available for your start-up.
Many start-up businesses start by contacting the local bank where they have established bank accounts. For success with this funding option, you need a viable business plan and good credit. Banks typically only provide loans to established businesses with at least two years of documented tax returns. As an entrepreneur, you can use your personal credit to qualify, but you’ll probably face higher interest charges.
Various online sources provide money based on an application you submit. Unsecured, this resource offers flexible repayment. While the fast money allows you to purchase inventory or buy office equipment almost immediately, the interest rate is high.
Small Business Grants
Who doesn’t love free money! Your local Small Business Association stands ready to provide invaluable advice and counsel. With your business plan, approach the SBA and ask for grant information. The SBA can advise you about grant opportunities, funding initiatives, and help you put together your application. In addition, they may also partner with a lending institution, such as a bank, to back or guarantee a small business loan.
Credit cards provide quick funds for anything you need. You might need to use your personal card until you can establish a business credit history. Many business credit cards include rewards like cash back or airline miles. The interest rate of this funding option is high which makes the money expensive if you can’t repay the charges every month.
Peer to Peer Lending
Investors or generous friends might be willing to loan you money for your entrepreneurial venture. Consider the implications this type of funding might have on your friendship’s future before asking friends for money.
Crowd-funding (or crowd-sourcing)
Though often thought of as merely a source of funding for creative endeavours such as fine art or music, the explosion of crowd-funding as an Internet-based way to raise money for a wide variety of reasons indicates that it will be a valuable source of money for the foreseeable future. Websites such as Kickstarter and IndieGoGo cater more towards creative projects, while Kiva and Wokai offer small loans to businesses in developing countries. In a time of decreased bank loan offers, crowd-funding may be an equally viable route depending on the amount of money your start-up needs.
While crowd-funding is not generally backed by any kind of guarantee, donors receive an incentive (often with different levels based on amount) for pledging money to a project. Incentives are often creative rewards with a personal touch, such as having an individual’s name be part of the larger project. If your business is seeking a medium-sized amount of funding, and you have the ability to incentivize a related reward, crowd-sourcing could be a creative solution to your problem. However, be aware that many crowd-funding services require that a certain level be reached for the project to be “fully funded”, or for you to receive funds.
In the past, credit union membership was open only to customers who met certain requirements like teachers or military members. Now, credit unions open their membership to residents or employees of the local community. With an open membership, your small business can access funding directly from your neighbors and other local community members.
In a credit union, the members own the bank. Instead of profits going to select executives in big banking, each member receives ownership benefits. They earn higher interests rates on deposit accounts and lower borrowing rates on loans.
As a negative aspect of member ownership, government regulations prevent credit unions from lending more than 12.25% of their assets to businesses. However, this regulation has pushed credit unions to create cooperative agreements known as CUSOs. A CUSO offers a greater array of financial services to business owners. While one local branch might have reached its business lending limit, another CUSO location might have the funds available.
Additionally, business owners receive services like saving accounts, lines of credit, numerous ATM locations, online banking and vehicle loans. At lower interest rates, the money borrowed from a credit union makes financial sense for a start-up company. Credit unions understand the importance of small businesses in the community, and they allow you to build a relationship that will benefit your business in the future.
Obtaining start-up capital can make or break your entrepreneurial venture. While some options provide fast money, others include high interest. For the best financing for your business’ overall health, contact your local credit union. Your start-up business benefits the community, and that’s what credit unions are all about.
Drew James is an expert in certificate of insurance management, as well as an avid runner and gardener. Find him on many of the urban trails criss-crossing Indianapolis!
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