Why the Best Bank for Your Startup May Be a Credit Union

A businesswoman meeting with a client.

Just maybe the best bank for your startup is not a bank at all but a credit union. That’s the advice of Rob Stephens, founder of CFO Perspective in Spokane, Washington, where he provides financial consulting for small businesses. “You will get all the benefits of a community bank but better rates,” he explained.

Stephens knows. He has worked as a CFO at several community banks and also put in a 6+ year stint as a senior vice president of finance at a credit union. And he is adamant that, in many cases, a credit union is the better place for a small business to bank.

You didn’t know they do business banking? Stephens said he often hears exactly that from small businesses and the reality is that historically most credit unions stuck with consumer accounts only.

But that is changing big time. At University Credit Union in Los Angeles, for instance, CEO Dr. David Tuyo says they are “making a strong effort to bring in more business accounts.” University has supported that effort with key hires of executives with experience working with businesses, said Tuyo.

Cross country at Truliant Federal Credit Union in Winston-Salem, North Carolina, Don Jackson recently joined the team to head the credit union’s Small Business Administration loan program. That focus is new at Truliant, and Jackson, who has extensive experience at community banks, has been tasked with jump-starting Small Business Administration (SBA) lending. “We are looking to increase our business banking,” said Jackson.

Credit Unions Hop Aboard PPP Lending

Credit unions around the country suddenly are all in when it comes to pursuing small businesses, and do note — many of them are actively engaged in helping small businesses get federal Paycheck Protection Program (PPP) loans. Welcomes may be chilly for small businesses seeking PPP money at the big banks and even many community banks, but many credit unions have developed expertise in PPP lending in the first round of federal funding.

Literally, many millions of dollars were lent by credit unions in the first round of PPP and, in Idaho, the state’s largest PPP lender was Idaho Central Credit Union. Nationwide, Mountain America in Sandy, Utah, was the credit union with the most PPP loans in round one: just under 7,000. Navy Federal, the nation’s biggest credit union, placed second with over 5,700.

If business lending — PPP, SBA, or even simple equipment loans — are on your want list, be candid about that when picking a credit union. Many keenly desire these loans, but some lack the expertise to obtain them. Know that the credit union you join has the skills.

The Credit Union Better Deal

Why are credit unions a better deal? They are owned by their members, not shareholders, and are in fact cooperatives. Generally, as Stephens pointed out, they offer higher interest rates on savings, charge lower (often no) fees, and charge lower interest rates on loans.

Right now, too, as Tuyo at University Credit Union pointed out, many credit unions, his included, are awash in deposits because, in the pandemic, many consumer expenditures stopped, from gym memberships to restaurant meals.

But credit unions — banks too — are so-called spread businesses. They take in deposits on which they pay out x% interest, and they make their money to operate by lending out the deposits at 2X%.

Their eyes are on businesses for making loans that will put that cash on hand to work.

Small Businesses Loudly Sing the Praises

Need more convincing that a credit union might be right for your business? Here’s what David Schein, president of Claremont Management Group in Houston, said: “Around 2012, I met Tony Allman, manager of the Heights branch of the Primeway Federal Credit Union in Houston at a Chamber of Commerce networking event. I moved my personal bank account to Primeway. Later, I obtained a mortgage for my office from Primeway.

“Sometime later, my commercial bank changed hands and sent me a form letter telling me that I would be charged double the monthly fees for my two small business accounts. I spoke to Tony and he said they could help me and I moved those two accounts over to Primeway. So, I am in my eighth year of working with Primeway and it has been a great relationship. Most recently, I also obtained a PPP loan through Primeway.”

In Atlanta, Nate Shivar, a business consultant, explained why he banks at Delta Community Credit Union: “The fees are extremely low and very transparent. When I was with a large regional — now national — bank, I would be repeatedly surprised by random fees.”

He added, “They are specifically focused on my geographic neighborhood, and cannot simply merge and move their headquarters out of my city like my previous financial partner did.”

How Can You Join a Credit Union?

One concern voiced by some business owners is the worry that they cannot join a credit union. That is simply no longer true. There are over 5,000 credit unions in the country, and many will welcome any particular small business.

It is true, however, that not every credit union will welcome every small business. Credit unions have what is called a field of membership (FOM). Some are wide open, many are wide open for a specific region of the country, and a few require a relationship to specific institutions. Tuyo’s University Credit Union requires a connection to one of many colleges and universities, ranging from UCLA to St. Mary’s College in northern California. But University welcomes not just students but faculty, staff, and alumni.

At Truliant, membership is open to anybody who lives or worships near one of its 35+ branches in North Carolina, Virginia, and South Carolina.

Look around, and there will be many credit unions that open their doors to your small business. Narrow the hunt by searching Google for “where can I open a business member account at a credit union.” Narrow that by inserting your state, and you will get plenty of available and close-by options.

Can a Credit Union Do All a Bank Can?

The other concern: can a credit union provide all the services and resources of a bank? The short answer is no. But the real answer is a small business probably does not need those services. Do a lot of transacting in obscure foreign currencies and, probably, you need a bank with global reach, for instance.

But the bulk of small businesses will find that a credit union gives them all the services they need.

Many credit unions also offer nationwide reach. How? They belong to credit union networks that bring together thousands of institutions. The so-called CO-OP ATM network, for instance, gives members access to 30,000 surcharge-free ATMs, which is twice as big as the biggest bank ATM fleet.

CO-OP also offers credit unions a service called shared branching, where a member at a credit union that belongs to this group can go to a branch of any other participating credit union and conduct business exactly as though they were in their home branch. Some 6,000 branches are in this network and that is bigger than the biggest bank network (Wells Fargo with 5,500).

Not all credit unions belong to these networks. If nationwide reach matters to you, make sure a credit union belongs to these CO-OP services before signing up.

Credit Unions and Their Tech Tools

A third concern has been that credit unions are perceived as lagging in technology — and small businesses increasingly expect slick mobile banking, mobile remote deposit capture (making a deposit by snapping a picture of a check), and even sophisticated cash flow analysis tools from their financial institution.

But the perception that credit unions are old fashioned, once true of many, no longer is true of a lot.

The reason is that in the last decade, hundreds of startup financial technology companies have sprouted up, and the target is often credit unions that are buying. James Van Dyke, the founder of Javelin Strategy + Research, which has done much of its work in financial services, says that credit unions have opened a significant technology gap between themselves and community banks. Credit unions may trail the mammoth money center banks — Chase, Bank of America, and similar — but they can provide much or all the tech a small business needs for banking.

Add it up, and the argument for a credit union gets strong. “Bank at a credit union and the credit union sees its job as advocating for its members,” said Stephens.

Stephens added that at most credit unions, a small business member is not just a number. They see the real person behind the business, and they value that person. How many bank customers can say the same about their financial institution?

Robert McGarvey

Robert McGarvey, a veteran journalist who has long covered startups and small businesses, created and hosts the CU2.0 Podcast for credit union and fintech executives which is at 120 episodes and counting.

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