Financing Your Small Business Startup? Here’s Why a Credit Union May Be Your Solution
Small businesses are part of the fabric the binds the country together and there's no lack of entrepreneurs looking to get their ideas off the ground. In fact, in 2012 more than 514,000 people opened new businesses. Not all of them are destined for success, of course, but regardless of what the business is, they all need to find financing. Securing funds for a small business startup is not an easy task and it requires both patience and determination. The growing financial costs of running a business may seem discouraging, but entrepreneurs launching small business startups can find some of the burden alleviated by allying themselves with community credit unions.
Since the financial crisis, many businesses decided to leave their former banks and move their business elsewhere. This led to many credit unions stepping in to offer budding entrepreneurs support the banks no longer would. Credit unions, however, aren't newcomers to the lending game. The economic turmoil simply helped shed light on what sets credit unions apart from banks and why they can be such beneficial partners.
The Costs of Running a Business
Regardless of what stage a business is in, it will always require money to keep the wheels turning. New small business owners, however, face greater financial hurdles with a broad range of startup costs. The amount of financial investment necessary varies, of course, with the type of business that is being opened. Most entrepreneurs will need to cover typical startup costs including electronic equipment, office supplies, inventory, machinery, advertising, operating space, licenses, permits, legal fees, and vehicles, amongst other expenses.
The costs also vary according to how much the individual entrepreneur separates the business from their personal life. In many cases, a new business will spill into personal life, and an entrepreneur may find themselves using their own vehicle, cell phone, and home in order to keep expenses down. Incorporating to create separation between personal and business assets also costs money, though it does give a degree of protection in the event the business fails.
Benefits of Working with Credit Unions
While credit unions have become more similar to banks and now offer many of the same services, they retain many distinctive qualities that set them apart. The most important is that fact that credit unions work as financial cooperatives and are both owned and governed by their owner/customers. In an economic environment that often makes it difficult for new entrepreneurs to find funding, credit unions are now helping new business startups to cover their costs more than ever. In many cases, entrepreneurs are finding that credit unions are their best options.
Credit Unions Are Relationship Driven
Whereas banks operate as strictly money-making institutions, closing their doors as soon as times get tough, community credit unions are comprised only of members and focus more on relationships. Since customers are the owners in credit unions, they have no need to answer to shareholders and can instead make decisions to benefit everyone. Leadership of the credit union is determined by the credit union owner/customers, and all of them have an equal say in who runs the institution. It is one of the reasons credit unions tend to put a greater emphasis on personal banking relationships.
Credit unions operate as non-profit institutions, meaning they pass along more of the profits to the owner/customers. Of course, credit unions still bring in money or they wouldn't be able to survive, but the difference is that there's no pressure to make money off the customers. Another benefit that comes with credit unions is that they're exempt from federal tax so they can put the revenue to work more effectively.
Fewer Fees and Higher Savings Rates
Another great feature of credit unions that small business can count on is that the generally have fewer fees associated with banking and higher savings rates. Generally, credit unions will offer customers free accounts with no minimum balance requirements. In addition, most credit unions have no fees. New businesses can also take advantage of lower interest rates on loans while enjoying higher interest on savings, certificates of deposits, and even checking accounts.
Programs Designed for Entrepreneurs
Credit unions are creating even stronger financial support networks for entrepreneurs and their small business startups with financing programs specifically geared towards helping these businesses get going. While lending is a vast component, these programs offer additional support through mentorships and networking opportunities.
Recently American fashion designer Tory Burch partnered with a number of credit unions to bolster support for women entrepreneurs as they begin their businesses. The program not only helps provide access to capital, it connects starting entrepreneurs with advisors and new business contacts. Credit unions are even seeking to help the youngest generation of entrepreneurs by creating opportunities for middle and high school students to start running their own businesses.