Pros and Cons of Banks Vs Credit Unions
What to Know Before Taking the Leap Forward With Your Business Banking
Owning and running a successful business today not only needs your personal attributes and creditworthiness but also the entrepreneurial tactics when it comes to decision making. Business owners need to think very fast and make the right decisions. This will help in grabbing the golden opportunities that come their way anytime.
Cash flow is the backbone of any given business however small it may be. Any interference with the cash flow could replicate many more problems that could eventually lead to business failure. Therefore, you need to make quick and wise decisions when it comes to business loans or savings as well as any other process related to money.
Nowadays, business owners unlike in the past have several options in terms of getting business loans and where they do their banking. We have traditional banks and credit unions from which entrepreneurs may go for quick loans. However, it is financially advisable to know the pros and cons before making the final decision. Here is what you need to know about banks vs credit unions when it comes to business.
What Are the Advantages of Credit Unions?
First of all, a credit union is a financial institution owned by members with common interest. For example, teachers may decide to form a teacher's union or people from a common location may just decide to have their own union. Another thing about credit unions is that they are not profit oriented but are meant to provide affordable financial services to its members. The advantages of these credit unions include:
Higher Interest Rates on Deposit Accounts
If you want to have a savings account that accrues more interest, then depositing your company's funds in a credit union is the best alternative when compared to banks. They may pay higher interest rates on all deposit accounts including savings accounts, checking accounts and money market accounts.
Statistically, depositors generally earn a greater amount on their deposits from local community banks and credit unions. Traditional banks have never offered interest rates better than credit unions. In most cases, only online banks have rates that are at least comparable to rates offered by credit unions.
Lower Loan Rates
As a business owner, it is always good to stay focused and acknowledge that there are unlimited ways you can get loans to boost your business. However, it is not all about being granted the loans but also the amount you are likely to be charged in interest. In order to have a smooth operation for your business, you need to identify lenders that charge very little interest on loans and lines of credit.
Mortgages, personal loans, business credit cards, business loans and business lines of credit given by credit unions are relatively cheaper compared to traditional banks. According to research, traditional banks charge rates that are a point or two higher compared to what's charged by credit unions. Thus, getting a mortgage or business loan from a credit union is cheaper than taking either from a bank.
This is another significant difference between credit unions and banks. Credit unions do charge a low amount of fees on different transactions compared to banks. Most credit unions do not have a minimum operating balance on checking accounts. Moreover, they do not charge a monthly account servicing charge. This can save the business hundred of dollars per year.
On the other hand, most transactions such as checks, withdrawals, and electronic transactions are also free of charge. Lastly, credit unions charge fewer fees on bounced check and overdraft fees. Generally, they do charge less on their daily transactions compared to banks.
Many people who have dealt with both banks and credit unions will tell you that credit unions are easier to deal with compared to traditional banks. Most of the times credit unions readily accept people with a troubled financial past (poor credit history). This is because they are small in size with fewer members thus the probability to decline your application is very low.
On the other hand, banks have many branches and have a large number of customers. Therefore, declining your application due to a low credit rating is very high. After all, losing one customer is not an issue to them. More so if you are a member of the credit union, your application may go through even if you do not meet all the requirements.
What Are the Disadvantages of Credit Unions?
Although the credit unions may have soft regulations and cheaper rates, there are certain drawbacks as highlighted below.
Poor Technological Advancement
Since credit unions are smaller in size and often have fewer members compared to banks, they do not have web-based features that can allow customers to do much on their online interface. Credit unions that have an online presence most of the times allow customers to do little such as transfer funds and see recent activity but nothing more.
With traditional banks, the online interfaces can allow you to see recent activity, transfer funds to another account, apply for credit cards, apply for loans and even pay bills. This shows that banks command a stronger online presence and functionality compared to credit unions.
As a member of a credit union and traditional bank, I have come to realize that credit unions do offer less financial products in comparison to banks. Traditional banks have different checking accounts, distinct types of loans, different credit cards and even a wide range of mortgage loans to choose from. This gives the customer freedom of choice since there exists a wide range of products that suit their personal and business needs.
Thus, belonging to a credit union limits your freedom of choosing financial products. The members are limited to only taking a specific financial product with no room to do any selection. This may be a big limitation for a large business but not so much with small to mid-size businesses.
Lack of Access to Physical Locations
Unlike banks that have physical branches countrywide, credit unions only operate from very few localities. This means that if a member relocates to a different location, it could prove very difficult for them to do their transactions. Furthermore, the online presence of most credit unions is also poor and forces the members to always be near a physical branch. If you are far from a physical branch, you can barely do anything.
When choosing where to do your business banking, take the time to list the pros and cons of each one and decide which bank will best serve the needs of your business both in the short term and long term.