Access to Low-Cost Finance Isn’t a Trouble Anymore: The Essential Role of Credit Unions

At one point, every business needs money to incur routine expenses and expand operations. Perhaps, you might need to install a new plant, purchase equipment, or pay suppliers within ten days to get a cash discount. You can reinvest profits into the business, but mostly, they aren’t enough to fulfill capital requirements. In such situations, the option of external financing kicks in.

Most entrepreneurs think of getting a bank loan, considering it to be the most viable option. However, with the shakedown of the financial markets, everyone must reconsider this decision. In addition, people have been complaining about bank’s service charges, high interest rates, and hectic procedures. So, why not explore other financing alternatives? Lately, the community-based banking institutions – credit unions have caught investors’ eyes.

Unlike traditional banks, credit unions offer flexible interest rates and low-cost funding options. They also have various investment options with customized plans for every client, providing multiple financial services. If you don’t know much about credit unions, have a look below. Here we are discussing the need and role of credit unions.

Why There is a Need for Credit Unions?

As demand for funding increases, people look for low-cost solutions to ensure debt doesn’t drown them into losses. Credit unions follow the principle of cooperatives; meaning, members will receive profits earned on loans in terms of higher interest on savings accounts. In short, it helps people in improving their financial position. Here are three reasons highlighting the need for credit unions.

  • Payroll Saving: The concept of savings is becoming less popular because of the lengthy banking procedures of opening a savings account. A credit union can provide ease of access to savings through payroll savings. In addition, it offers high interest rates, building your savings over the years.
  • Third-Party Capital: Many people hesitate to take a bank loan, thinking they might fall into the debt trap. Well, credit unions offer third-party credit with meager interest rates, making repayments effortless.
  • Lack of Access to Bank Accounts: Did you know? In 2019, approximately 9.1 million Americans didn’t have a bank account, indicating that many people still don’t trust financial services. If people lack trust in traditional banking, credit unions can bridge the gap by offering affordable credit

Role of Credit Unions in the Finance Industry

As the need for credit unions is growing today, let us shed some light on their role in the finance industry.

1. Better Interest Rates

Undeniably, getting loan approvals from corporate banks until you show them a high dollar balance is impossible. Even if you do get a loan, the interest rates will be higher than the market average. Well, that’s not the case with credit unions. Since profits aren’t a part of the union’s vision, credit unions offer lower interest rates on loans. People can qualify for additional discounts by setting up automatic payments, allowing people to save on student loans, mortgages, etc.

Moreover, the unions pass on the surplus earned on loans to their members. They charge a lower fee, provide additional services, and offer a higher return on a savings account. Hence, allowing people to make money on their savings and move forward in the right financial direction.

2. Convenient & Flexible

Whenever someone opens an account with a credit union, they become a member of the union. Credit unions don’t have stockholders; meaning, it works for the benefit of its members. It follows a non-profit model to create the best customer support and service experience. Hence, you will come across more customer-friendly policies and regulations. Credit unions have a welcoming atmosphere and tone, making external financing more accessible on every level. Best of all, they have more forgiving rules. For instance, if a customer has a poor credit score, the credit union representatives will provide an effective solution.

3. Credit Union Guarantee

Unlike traditional banks, credit unions don’t belong to the Federal Deposit Insurance Corporation (FDIC). Instead, they belong to the National Credit Union Administration (NCUA), backed by the government. NCUA guarantees up to $250,000 to customers in case the credit union fails. For instance, if you have a fixed deposit account and the credit union goes bankrupt, the NCUA will cover all the losses. Therefore, clients no longer have to worry about their finances. So, as you start exploring the credit unions in your nearby area, make sure it belongs to the NCUA to keep your funds protected.

4. Simple Qualification Standards

Most banks look at the borrower’s credit score and debt history to get an idea of their financial viability. Banks also ask for financial statements, business plans, tax documents, and collateral before giving a loan. Instead of spending time on these specific procedures, why not look for more straightforward financing options? Credit unions offer various financial services to all their members. You can open an account, borrow money, or apply for a credit card.

However, there are some rules for becoming a member of trade unions. You have to live in a specific geographic region where the credit union exists. Similarly, you have to be working for an employer or going to school. Once you qualify for these requirements, you can start availing of financial services without additional regulations.

5. Personalized Credit Assistance

Usually, people having poor credit scores have difficulty qualifying for a loan. Sometimes, they have to settle for high interest rates while they opt for invoicing options. Today, credit unions are offering personalized credit assistance to people struggling with finances. The credit counselor looks into every individual’s credit history and strives to find loan terms that work in their favor. Then, they discuss their best products, help people get out of debt, and recommend ways to improve credit scores.

Moreover, credit unions have loan applications online where a credit representative can assist you round the clock. You can explain your circumstances, and they will provide suitable solutions. For instance, if you want the loan to purchase a plant, equipment financing might be more convenient than a conventional loan. Besides, some credit unions also offer educational programs to help you develop better financial habits.

Final Thoughts

Before you jump to external financing, don’t forget to explore the option of credit unions. They are far more convenient, flexible, and offer lower interest rates on loans. Also, since credit unions are non-profit making organizations, the returns on savings are much higher. Likewise, they have transparent and simple qualification procedures, making it easier to acquire funding. Hence, start looking for reputable credit unions in your region and enjoy low-cost funding options.