As an entrepreneur who has used a credit union and traditional bank for my business banking needs, I have much to say about this topic. Although many small business owners use traditional banks (e.g. Bank of America, J.P. Morgan Chase, etc), a credit union is my preferred banking institution for my business needs. This is primarily because my business is tiny (it’s just me and a few independent contractors). In this blog I’ll identify why I believe credit unions work best for America’s smallest businesses (and I’ll do my best to do it from a non-biased view point). By the time you’re done reading this blog you may be convinced that a credit union is better (for your small, tiny little business) than a traditional bank.
What I Believe Makes a Credit Union So Special
I believe that two of the greatest things about most credit unions is their reduced (to non-existent) fees and the ease of opening an account. If you have a good check writing history (or even if you have none at all), you’ll be able to open a checking account with a credit union with as little as $5.00. If you want to open a savings account, the minimum initial deposit is usually the same ($5.00). This can vary from credit union to credit union but the amounts are still pretty low. The credit union I use for my business banking needs has business checking and saving account options that enable you to open one with as little as $5.00.
Anytime I have opened a business checking or savings account at a traditional bank, I’ve had to deposit anywhere from $50 to $200. Many traditional banks also have tons of fees associated with them. For example, depending on the type of business account you open at a traditional bank, you may be required to:
- Pay a fee for every transaction (e.g. deposits and withdrawals).
- Pay a monthly maintenance fee to keep the account open.
- Maintain a minimum balance to keep the account open.
This is what’s so great about opening a business checking or savings account at a credit union— the low fees. In fact, at my credit union, I am not charged a fee per transaction or a monthly account maintenance fee. I am also not required to keep a minimum balance in my account. The fees, initial deposit minimums and minimum balance requirements differ between traditional banks and credit unions because one is a for-profit and the other is not-for-profit. Banks are for-profit, public companies. The board of directors, management team and employees are required to meet shareholder expectations. This is major part of the reason why traditional banks have so many fees. They are designed to make money and the best way to do that is through fees (and interest). Credit unions don’t have shareholders, rather members (i.e. the people who open an account with them). This is why the fees are much lower at credit unions.
Credit Unions are Also Great for Financial Education
While at my credit union today I noticed they were offering a free seminar for people who want to learn how to save for retirement. Financial literacy is critical for all entrepreneurs, small business owners and people in general. I noticed that credit unions offer seminars like this all of the time. I’ve been invited to attend seminars about retirement savings, investing, life insurance, credit and budgeting. These are all important topics for business owners who want to manage and invest the income they earn from their business properly so they can retire comfortably one day.
Why I Think Traditional Banks are Not That Great for the Smallest Businesses in America
I don’t know about you, but I am not a fan of bank fees of any kind. I’ve had accounts at both credit unions and traditional banks and the fees are the only reason I stir clear of traditional banks. For small businesses that have less than 5 employees/contractors (like mine), traditional banking fees may be just a little too costly. If your business only generates $5,000 per month in revenue and a traditional bank requires a minimum monthly balance of $10,000, then a traditional bank is likely not for you. The great thing about credit unions is that you don’t have to worry about these types of things. Establishing a business checking and savings account at a credit union will save you a ton of money. You can always open an account at a traditional bank as your business grows larger.
Traditional Banks are Good for Unsecured Business Credit & Small Business Loans
Traditional banks are good for obtaining the funds to finance your business. Unsecured business credit and small business loans from traditional banks can be used as startup or working capital. While you don’t need to have an account at a traditional bank to apply for unsecured business credit or a small business loans, it can help. If you’ve established a relationship with the bank and a significant portion of your company revenue is being deposited into an account at the bank, they may be more willing to approve your financing request. Whether you have 1 employee or 20, a traditional bank may be the place to go to apply for financing for your business.
LenCred Can Help You Get Unsecured Business Credit or a Small Business Loan
If you’re interested in applying for unsecured business credit or a small business loan, LenCred may be able to assist you. It’s actually a good idea to contact an expert organization like LenCred before you apply for any type of business financing on your own. This is because the LenCred team specializes in identifying what type of business financing you will likely qualify for and which banks you should apply to. This enables to apply for the right type of financing (and with the right lender) on the first try. Applying for the wrong type of financing (and with the wrong lender) can decrease your chances of getting approved.
LenCred experts also have knowledge of many of the credit unions and traditional banks that offer both unsecured business credit and small business loan financing options. To get started, all you need to do is complete a FREE pre-qualification application. A LenCred Advisor will analyze your personal (and/or business) credit history and discuss your unique business needs with you to determine how to get your business funded. Click here to get started.