CF Credit Union Banking for Mid-Size & Small Business

The need for bank financing is a critical and a ongoing issue for the owners of mid-size and small business. Indeed, few things are as crucial to the health of a business.

Many small businesses are launched by the personal resources of their owners. But they can quickly reach the stage where the owner must look to the credit market for bank financial help in expanding operations, or buying inventory.

CFCU and credit union (CU) bank financial services and banking institutions are important sources of funding and business working capital. However, business entrepreneurs may not realize applying for commercial credit is a more customized and difficult process than obtaining personal consumer credit.

Credit approval (and to get favorable interest-rate and terms) requires a good deal of preparation by the business applicant. This website will help remove the mystery from the credit process and improve your chances of getting the credit financing you need to succeed in business.

Types of Credit Union/Bank Loans

CU's, Banks and other financial institutions can assist you by providing funds through personal or commercial credit lending. Examples of personal credit include automobile loans, credit cards, and home mortgages. Commercial credit includes business loans; here are some of the options:

Short-term loans are one of the most common types of business loans and are usually for less than one-year. They can provide interim financing and working capital for a business temporarily in need of cash, and are typically repaid in a lump sum when inventory or accounts receivable are converted into cash.

Intermediate-term loans are often used for a business start-up, the purchase of new equipment, expansion, or an increase in working capital. The maturity dates range from one to three years.

Long-term loans generally are made for major capital improvements, acquiring fixed assets, or business start-ups. The term of the loan runs for periods of three to five years and is usually based in pan on the life of the asset financed. Repayment is usually made in monthly or quarterly installments.

A line of credit offers you the ability to borrow money repeatedly, up to your credit-line limit, without having to reapply. An open line of credit is particularly important to businesses that experience seasonal fluctuations. The lender generally will perform at least a yearly review, at which time the borrower is asked to provide updated financial statements.

The Credit Application Process

Applying for commercial credit can be tedious. It calls for more documentation than you might initially have expected and certainly a lot more than when you apply for consumer credit.

For state or federal credit union (FCU) lenders, extending credit to an entrepreneur usually means customizing the loan to suit the credit needs of the business. So do not be discouraged by the amount of paperwork needed to accompany the credit application. Instead, be prepared!

Among the best assets you can bring to the lender is a well thought-out and documented business proposal, also known as a business-plan.

You need to clearly state the purpose of the bank or creditunion loan (will the money be used for temporary working capital, buying inventory or equipment, expanding facilities, etc.), the amount of funds needed and for how long; and a proposed payoff schedule. Your business proposal should include the following details:

• business description stating the nature of the business, describes the product and its market, identifies its customers and competition.
• personal profile that outlines the background and experience of each of the principals in a resume.
• proposal which states the type of business loan requested and loan purpose.
• business plan that outlines your business strategy. for the next three to five years; it will aid you and the lender in determining whether the business will generate the cash flow needed to repay the loan.
• repayment plan that tells how you propose to repay the loan or outlines a repayment schedule. The lender will be expecting you to repay the borrowed funds from the profits produced by the business. As a contingency, you might need to sugest a plan on how to repay the loan if profits turn-out to be inadequate.
• supporting documentation will include copies of pertinent papers that support the information contained in your loan proposal--for example, a lease, certificate of incorporation, partnership agreement, letters of reference, contracts, invoices or vendor quotes.
• collateral you can use to secure the payment of the loan. Collateral may include business and personal assets such as inventory, equipment, and accounts receivable, or real estate, stocks, bonds, or cars and trucks.
• financial statements, both personal and for the business. The business financial statement should be provided for the last three to five years of operation including a year-to-date interim report.
• Your financial statement should also contain a balance sheet showing all business assets and liabilities, and a profit-and-loss (P&L) statement showing revenues and expenses. The lender uses this information to calculate a debt-to-worth ratio for the business. Be prepared to provide copies of business tax returns for this same period.

The personal financial statement should list your assets and your liabilities. Identify the names in which title to each asset is held and its market value. You should be prepared to provide copies of your personal income tax returns. You may be asked for a list of credit references. Lenders will check your personal as well as your business credit rating.

Lenders will carefully examine your financial statements and business projections. As a borrower, you must be fully prepared to answer questions about them.

* personal guarantees of the business owners or other principals usually are required, even from an established business. The lender also may request another party's guarantee such as a cosigner or a surety, or may request a government guarantee from the U.S. Small Business Administration or other government agency.

In addition to the personal guarantee that you give, under the Equal Credit Opportunity Act the lender is allowed to require another person's guarantee should your application fail to meet the lender's standards of creditworthiness. If all or most of the assets listed on your personal financial statement are owned jointly with your spouse, or with someone else, the lender is likely to require such a guarantee, But the lender may not require that your spouse be the guarantor,

In the case of secured credit, the lender is allowed to obtain a spouse's signature on certain documents when the applicant offers, as security for the loan, property that the two own jointly, In this case, the spouse or other co-owner may be asked to sign documents--such as a mortgage or other security agreement--that would be necessary under applicable state law to make the property available to satisfy the debt.

Sources of Technical Assistance

Before you approach a lender, you might want to seek the advice of another, more experienced "set of eyes" to review your business proposal, particularly if you are a first-time borrower. By doing so, you'd be getting the loan package in shape to make it easier for the lender to reach a favorable credit decision. There are some business support groups whose members could counsel you on how your funding package looks.

A qualified debt financing counselor may even discover you don't need more money, and instead suggest better inventory control, improved marketing techniques, cost reductions, or other changes to possibly solve your growth problems. One source of counseling available to small businesses is the Service Corps of Retired Executives (SCORE), which is sponsored by the U.S. Small Business Administration. Others might include accountants and financial advisors.

Once you are satisfied your business borrowing proposal is in good shape to present to a bank commercial loan officer or credit union business loan officer, set up an appointment to discuss your loan application. You will find the lender can also be an excellent source of business and financial counsel.

If Your Application Is Not Approved

Most lenders, banks especially, are conservative in granting business loans. Given the obligation to their stockholders and depositors, they need to be sure there's a good chance the loans they make will be repaid.

If your loan application for credit is not approved, find out the reasons why. Some of the reasons that lenders often give for denying a business loan include, for example, insufficient owner's equity in the business; lack of an established earnings record; a history of slow or past-due trade or loan payments; or insufficient collateral. Finding out the reasons may help you qualify the next time you apply.

The lender will keep you informed about the status of your application. If you are considered a "small business" (when your business revenues are one-million or less, or when you are applying to start-up a new business), a lender has 30-days to let you know, either orally or in writing, whether or not you get the credit financing. The 30-day period begins after the lender has received all of the information needed to evaluate your credit request. If your application is denied, the lender must give you either:

• a written statement of the reasons for denial, or
• a written notice telling you of your credit rejection reasons in writing and name/address of the credit bureau. The name and address of the credit reportng agency may also be given to you during the application process, in addition to time of credit denial.
• You have a right to get a free-credit-report to give you the opportunity to check the accuracy of your personal credit-report and takes needed steps to improve your credit. Creditcardcops offers free credit card and credit bureau advice. Plus, comprehensive online-credit-repair forms to help you restore good credit.

The lender also will keep for one year the records relating to your credit application.

Different rules apply for larger businesses (those with more than $1 million in revenues}. Within a reasonable period of time after getting all the necessary information on which to base a decision, the lender must decide and let you know whether or not you get the credit. Then you'll have 60-days in which to ask for a written statement of the reasons why you were denied credit; this is important to remember because the lender need not notify you of this right.

The creditor will keep records of your application for at least 60-days after telling you of the credit decision. If you request that records be kept longer, or ask for a written statement of the reasons for denial, records will be kept for one-year.

Equal Credit Opportunity Act

Obtaining credit can be a difficult process for any business owner and especially for first-time borrowers. But keep in mind that different lenders have different standards; if you did not meet the standards of a particular lending institution, you may still qualify elsewhere. If you have a full understanding of why the initial lender didn't approve your application, with time and more attention to these areas, you can improve your proposal as a result and may succeed the next time you apply.

Women and minority applicants may be concerned that they have received less favorable treatment which is unrelated to their creditworthiness. All business applicants have certain protections against unlawful discrimination under the Federal Equal Credit Opportunity Act. The Act makes it illegal for lenders to deny your loan application, discourage you from applying for a loan, or give you less favorable terms than another applicant because you are a woman or a minority group member.

Under the law, a lender may not discriminate by taking non-relevant personal factors such as sex, race, national origin, or marital status into account. For example, in the past many U.S. females have been victims of sexual bias regarding loan terms, and blatant credit discrimination.

In addition, the lender may not ask for information about your spouse unless your spouse has some connection to the business, or unless you are relying on your spouse's income to support your credit application or relying on alimony, child support, or separate maintenance payments to establish creditworthiness. But the lender may ask you for information about your spouse if you are living in, or you are relying for security on property located in, a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin).

Whether your business is large or small, if you are not granted the credit, be sure to discuss any questions you may have with the lender.

If You Need Help

If you are not granted credit by the lender and you believe the lender may have acted unlawfully, you can seek further assistance from the regulatory agency that supervises the institution. A list of some of the agencies is contained in this brochure for your reference. If it becomes necessary to seek legal assistance, the Act provides some remedies. If you have been denied credit because of unlawful discrimination and are able to prove it, courts may award actual damages and in some circumstances may impose punitive damages against the lender. If a lawsuit alleging discrimination is successful, the court also may award court costs and attorney fees.