Working in the small business financing industry, I’ve had the opportunity to talk with a lot of alternative lenders. A lot of these interviews are basically saying the same thing, business owners are getting turned down at the bank, and alternative lenders are here to help.
After a while, I’ve started to wonder what the credit union’s take on business lending is. Traditionally, banks and credit unions offer term loans, which are a lower interest rate, but a lot more difficult for businesses to get.
So, I emailed Jim Salmon from Navy Federal Credit Union and asked him some questions concerning small business lending and how to get a term loan. Here’s what he had to say:
What’s your best advice for startups looking for funding?
My best advice for startups looking for funding is to make sure you can show you have your own money to put into your business upfront. What many don’t realize is that you cannot solely fund your business with someone else’s money. You have to have your own personal investment as well.
What about people that have been in business for several years?
If you’ve been in business for several years, you have a leg up over someone who’s new to the industry because you pose less risk to anyone evaluating your profile. However, it is still crucial to have your financial house in order and be able to articulate why you need the funds and how they will be used.
What’s the number one reason people are turned down when coming to credit unions for loans?
The number one reason people are turned down for loans is because they don’t have their financial house in order, which goes back to my piece of advice for both startups and those that have been in business several years. However, credit unions are unique in that we’re about people helping people. Our dedicated business advisors will sit down with our members and help them find ways to get on track and pursue their dreams of having their own business.
What do a lot of people use their business loans for? Operating expenses? Equipment?
Business loans are typically used for true business assets that are needed to be productive. Sometimes a piece of equipment is necessary, such as a vehicle or 3D printer. At Navy Federal we evaluate and discuss the most proper credit product for the situation at hand with the business owners. That way we can ensure business loans are being used for business purposes.
With the alternative financing industry growing rapidly, how are credit unions evolving?
A lot of the alternative financing that is available is expensive – it’s not unusual to have APR’s as high as 25 and 30 percent. Credit unions by nature are member-owned and not for profit, therefore any income we earn goes back to our members in the form of low rates. By keeping our rates low, we help foster the success of the business we’re dealing with. To compete with these alternative financing lenders, we continually look at our process and member experiences and try to make them more efficient and convenient.
What’s the best business advice you’ve ever received?
From a small business perspective, the best business advice I’ve ever received is to find a mentor. Don’t go at it alone. A mentor can help smooth out the rough roads that are ahead and steer you away from mistakes that they or someone before them made. Being a small business owner is tough, and it’s helpful to have someone to talk to and share those experiences with during those times.