Where’s the Money? Whom to Turn to When You Need a Business Loan

If you’re a small business owner starting out and need a loan, where would you go?

Both credit unions and community banks are possible lenders.

That wasn’t always the case with credit unions.

“Historically, many credit unions didn’t lend to businesses,” said Wendy Kalbach, senior manager of community and business development at Lebanon Federal Credit Union, headquartered in Lebanon.

“In recent years, credit unions are growing and competing with commercial banks to offer more loan products and services, including commercial (business) loans.”

Lebanon Federal Credit Union, for example, offers auto loans, mortgages, home equity loans, Signature loans, personal lines of credit, student lending, and business lending.

The money for the loans comes from the credit union funds, which it has on deposit, and from the interest it earns on accounts. The credit union itself backs all its loans.

“We have provisions that we set aside in case payment isn’t made by the borrower,” said Kalbach.

Because credit unions are not-for-profit institutions with voluntary, member-elected boards, their loan interest rates and fees may be lower to their members, which means a lower overall cost of borrowing. Credit union profits go directly back to the membership, allowing an institution like Lebanon Federal Credit Union to offer higher savings rates and lower fees to its members.

“A credit union is owned by its members,” said Kalbach. “If you open a savings account with $25, that makes you a member and part owner of the credit union.”

Kalbach also pointed out that it may be easier to get approval for a loan at a credit union.

“We have a tradition of going out of our way to lend to the underserved, whom some banks would turn down,” Kalbach said.

Credit unions, she added, offer the same products and services big banks do, “with a more personal, hometown touch. Our focus is to serve the financial needs of our members and our local community.”

Anyone who lives, works, worships, or attends school in the area is eligible for membership in most credit unions.

Banks have long been active in the lending business.

Jonestown Bank & Trust Co., for example, offers many types of loans, including real estate, business assets, equipment, working capital, and business expansion, said Regina Lutz, commercial lender.

In addition to loans, banks counsel borrowers about creating a business plan, how the financial process works, and what to do to qualify for a loan.

There are quite a few programs available to small businesses and entrepreneurs, such as Community First Fund, USDA-Farm Service, and Small Business Administration loans, said Lutz.

The USDA guarantees a portion of the loan. The SBA, on the other hand, requires the borrower to put 10 percent in cash as a down payment.

Without the SBA, however, the percentage goes up to 20 percent.

“So, an SBA loan is helpful for those who don’t have the capital for 20 percent,” said Lutz.

Jonestown Bank & Trust is an approved SBA lender to accommodate loan requests.

“Community banks can go through the process in partnership with SBA to make a loan happen,” said Lutz.

Jonestown Bank & Trust prides itself on being able to “take each deal on its own individual merits,” she said. That means, for example, using additional collateral in lieu of 20 percent down in cash or analyzing the borrower or guarantor’s entire financial picture when looking to lend to new or infant businesses that require financing.

Community banks like Jonestown Bank & Trust offer credit cards for small borrowers—which are “a great solution for a lot of small businesses,” said Lutz. They also offer working capital lines of credit, loans, and mortgages.

Banks can also provide cash-management services. By utilizing a sweep cash-management product, the surplus balance sweeps from the checking account into the line of credit after every business day. This reduces the borrowers’ interest expense.

Most banks tailor cash-management needs to suit a specific business. They also have trust and investment services that not only help invest the profits of the business, but also help individual business owners with their trust- and wealth-management needs.

“It’s not ‘one size fits all.’ Each owner may have a different need,” said Lutz.

In lending, it’s very important that the lender know and understand how a business operates: Its cash-flow cycle and finances help determine what the business needs. That may mean more than one appointment between the lender and the business owner.

Such an understanding means the lender can recommend the best products to serve the business’s needs. A business owner may not necessarily know what they are or what is available.

It seems both credit unions and banks are interested in helping today’s businesses grow through a variety of long- and short-term lending products. It’s a matter of getting to know the business and their needs, so not only can an effective plan can be established to help them grow their business, but also the lender’s name is strengthened in the community. BW