At many banks, there is a freeze on new loans to small businesses. True, with the recent governmental measures, things should loosen up. But it's going to take time.
Unfortunately, many businesses need money now.
So, what are some alternatives? Well, one idea is to visit your local credit union.
A credit union is a not-for-profit financial institution which is owned and managed by its members (that is, the depositors and borrowers). There are roughly 8,300 credit unions across the nation with more than 90 million members.
Credit unions tend to be managed fairly conservatively, with little exposure to complicated investments like derivatives and subprime loans.
Okay, so how do you become a member? Basically, each credit union has its own criteria, which may be based on occupation, geography, association and so on. Keep in mind that many credit unions allow family members to join. Thus, if your mother is a member, you'll probably be allowed to join. (You can click here for a credit union finder).
As for the loan process, it is similar to the traditional approach. "With current turbulent financial markets, a loan is likely to get more scrutiny than say a few years ago, but credit unions are in still in the market and lending," said Bill Hampel, who is the chief economist for the Credit Union National Association. For information on the loan process, you can check out a recent Entrepreneur's Journal column entitled "Using an SBA loan to buy your dream business."
According to Hampel, there are some other things to consider:
- Credit unions tend to be careful lenders, so they require full documentation on loans.
- About 24% of the nation's credit unions offer member business loans.
- The average loan size is $180,000.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
10-20-2008 @ 6:10AM
al coholic said...
It's worth joining a credit union if for no other reason than to get a credit card where you are treated fairly. I can't speak for all credit unions, but mine is very consumer friendly and offers low interest rates and treats it's customers like customers instead of indentured servants.
10-20-2008 @ 9:34AM
Ed Tuvin said...
Good morning Tom -
I read your article referenfed above. it is a good source and dare I use the word "creative" when linked to anything financial these days. I was an SBA lender for the past decade and this excellent source of lending to small business has all but dried up. Two primary reasons are 1) in its infinite wisdom, the government in August revised the SOP and made it more difficult for borrowers to obtain certain SBA loans (particulalry the kind that filled a niche where banks did not want to provide conventional loans) and 2) the market for the sale of these loans has either dried up or the premiums have fallen to levels that make it unprofitable for a bank to consider originating the loan. Like many business owners in the US, we share a serious concern for our security as a result of impacts related to the banking and economic crisis. Larger contractors may be finding it difficult to locate team members when qualified 8a, women owned and other small businesses are being turned down for the type of uncollateralized lines of credit required to fund many of our most important government contracts. In cases where current banking relationships may not be willing to increase credit lines to accommodate new opportunities, or even worse simply want to restructure or terminate existing lines, then another possible solution is factoring of receiveables. Its not sexy, its not fancy, it is more expensive then what we have been used to in term debt or lines of credit, but it gets the job done, and it does it very fast. It can also be used as a means to raise some of the funding necessary in M&A transactions when qualified receiveables are available.
Creative Capital Associates offers receivables financing to government contractors and private sector clients nationwide. Typically our clients are working on projects or contracts that need continuing cash flow for payroll, supplies, etc. By partnering with our financial backing, the company can operate smoothly as well as continue to seek larger customers. Well into our second decade of operations, we bring a wealth of knowledge and experience to the table. Our website is www.ccassociates.com.
Eddie Tuvin, Managing Director
Creative Capital Associates
301.767.5942
eddie@ccassociates.com
www.ccassociates.com
Vice President - Maryland Commercial Lender's Association
Board of Directors - Johns Hopkins University Alumni Council
Dean's Advisory Board - Carey Business School
2006 Baltimore Smart CEO Magazine's "CEO's Choice Top Financial Advisor" Award
District Advisory Council Member - United States SBA DC District 2003 - 2008
Life Member - University of Maryland Alumni Association International
10-20-2008 @ 2:16PM
c k langdon said...
Despite freezes on loans at banks, almost every bank in the nation will provide a loan from 10 million on up, if it is backed by a Standby Letter of Credit (SBLC), which is a cheap way to guarantee a loan.
10-20-2008 @ 5:59PM
Perry Allotta said...
If you can its better to buy cash in any situation. I am right or wrong or wrong.!
10-20-2008 @ 10:47PM
david said...
will a credit union make a construction loan? 80% LTV?
10-20-2008 @ 10:49PM
Mike C said...
Credit Unions are an alternative to a bank. However, they are exposed to the real estate down turn. A few Credit Unions are closing branches and lessening benefits.
As for a business loan, it is best to look at your business plan first and make updates as necessary before searching for funding. Money can still be borrowed but be carefull of leverage. Don't bet more than you can afford to loose right now. Bouncing back will become more difficult.
It appears Ed Tuvvin has a pretty good nitch market. Especially with all the talk of investing in our infrastructure.
Best of Luck,
Mike C