Small businesses face a variety of challenges and opportunities when it comes to managing their finances.
One of the most important decisions a business owner can make is choosing the right financial institution to handle their business accounts.
Banks and credit unions are two common options for small businesses, but knowing which is the best fit can be difficult.
In this post, we will explore the key differences between credit unions and banks and provide information to help small business owners make an informed decision about which type of financial institution best suits their needs.
Is It Better To Have a Business Account With a Credit Union or Bank?
Prior to starting a business, had you ever considered the differences between credit unions and banks? It may not have seemed like a big deal, but now that you’re running your business, you need to make decisions that benefit your business.
Is a bank account or credit union better for small businesses?
It depends on your specific needs and circumstances. Both credit unions and banks offer business accounts, and the best option for you will depend on factors such as:
- Interest rates: Credit unions often offer higher interest rates on business savings accounts than traditional banks.
- Fees: Credit unions generally have lower fees for business accounts compared to banks.
- Services and resources: Banks typically offer a wider range of services and resources for businesses, such as loans, lines of credit, and cash management services.
- Personal relationship: Credit unions tend to focus on building personal relationships with their members and may be better equipped to provide customized support and solutions for your business.
What Is the Difference Between a Credit Union and a Bank?
Credit unions and banks are both financial institutions that offer similar services, such as savings and checking accounts, loans, and credit cards.
However, there are some key differences between the two:
Ownership: Credit unions are nonprofit organizations owned by their members, while banks are for-profit institutions owned by shareholders.
Purpose: Credit unions exist to serve their members, while banks aim to generate profits for their owners.
Membership: To use the services of a credit union, you must be a member, which typically involves meeting specific eligibility criteria. Banks, on the other hand, are open to the general public.
Interest rates: Credit unions often offer higher interest rates on deposits and lower rates on loans than banks.
Fees: Credit unions generally have lower fees for services such as overdrafts, monthly maintenance, and account transfers.
Customer service: Credit unions are known for their personalized, member-focused approach to customer service, while banks can be more transaction-oriented.
Union for Your Business Bank Account
When choosing between a bank and a credit union for your business banking, there are several factors to consider, including:
- Services offered
- Fees charged
- Interest rates
- Technological advancements
- Customer service
- Local presence
Thoroughly evaluating each of these factors is important before deciding whether to choose a credit union or a bank for your business accounts.
To ensure you make the best decision, consider creating a list of the services and features your business needs.
Next, gather the information on the fees, interest rates, and loan options each financial institution offers. It may also be helpful to speak with current customers of each institution to gain insights into their experiences with each.
Advantages of a Credit Union vs. a Bank for Business Accounts
Credit unions generally have lower fees compared to traditional banks because they are not-for-profit organizations.
Credit unions are owned by their members and aim to provide affordable financial services to the community rather than maximizing profits for shareholders. You may find that credit unions have lower fees for services like:
- Account maintenance
- Overdraft protection
- Loan processing
Credit unions often offer more personalized services to businesses than traditional banks because of their community-focused and member-owned structure.
Credit unions typically have a smaller customer base and prioritize building relationships with their members, including businesses. This allows them to understand the unique needs of each business better and offer tailored financial services and advice.
Credit unions often differentiate themselves from traditional banks by offering more personalized and localized services, including:
- Customized financial solutions: Credit unions often offer customized financial solutions to businesses based on their specific needs and goals.
- Local decision-making: Credit unions have local decision-making authority, which allows them to respond quickly to business needs and provide more flexible loan options.
- Personalized attention: Credit unions typically have a smaller customer base and prioritize building relationships with their members, including businesses. This allows them to provide a more personal level of service and attention.
- Community involvement: Credit unions often support and invest in the local community, which can provide businesses with increased visibility and reputation benefits.
These personalized services, combined with lower fees and a focus on serving the community, can make credit unions an attractive option for businesses looking for financial services.
Competitive Interest Rates
Interest rates for businesses offered by credit unions can be more competitive than those offered by traditional banks, but it depends on several factors, including the:
- Financial strength of the credit union
- Size of the loan, and
- Creditworthiness of the business.
On average, credit unions may offer lower interest rates on loans because they are not-for-profit organizations and prioritize providing affordable financial services to their members.
Strong Community Focus
Credit unions have a strong community focus because of their structure and mission. This community-based structure allows credit unions to prioritize serving the financial needs of their members and to support local initiatives and organizations.
Credit unions often engage in community outreach efforts, sponsor local events, and support community initiatives. They also often offer financial education and outreach programs, which can help to strengthen the financial literacy of their members and the local community.
This strong community focus sets credit unions apart from traditional banks, which are often more focused on maximizing profits for shareholders. As a result, credit unions are often viewed as trusted and reliable financial partners within their local communities.
When a credit union is "member-owned," it means that the credit union is owned and controlled by its members rather than by outside investors.
Members of a credit union are typically required to meet certain eligibility criteria, such as living in a specific area, working for a specific employer, or being a member of a specific organization.
As owners of the credit union, members have a say in how the credit union is run and have the opportunity to vote on important decisions, such as the election of the board of directors.
Members also share in the credit union's profits through:
- Better interest rates on deposits
- Lower fees, and
- Other benefits
This structure allows credit unions to offer more affordable financial services, more personalized attention, and a stronger community focus compared to traditional banks.
Advantages of Choosing a Bank vs. a Credit Union for Business Accounts
Larger Network of Branches & ATMs
Banks have a larger network of branches and ATMs compared to credit unions for several reasons, including:
- Larger size: Banks are typically larger financial institutions, which allows them to invest in a larger network of branches and ATMs.
- Wide reach: Banks often have a wider reach than credit unions, with a presence in multiple states or even countries, which can result in a larger network of branches and ATMs.
- Increased resources: Banks typically have more resources to invest in branch and ATM networks, which can result in a larger and more extensive network.
- Consumer focus: Banks often prioritize consumer banking services, which can result in a larger network of branches and ATMs for consumer convenience.
While the larger network of branches and ATMs offered by banks can be convenient for customers, it is important to also consider other factors such as interest rates, fees, and customer service when choosing a financial institution.
Wider Range of Services
Banks may offer a wider range of services to businesses compared to credit unions, including:
- Corporate banking: Banks may offer specialized services for larger businesses, including treasury management, trade financing, and commercial lending.
- Investment services: Banks may offer investment services, such as wealth management, portfolio management, and stock brokerage services.
- International services: Banks may offer international services, such as foreign currency accounts and international wire transfers, which can be beneficial for businesses that operate globally.
- Advanced technology: Banks may offer more advanced technology, such as digital banking platforms and mobile apps, which can provide businesses with greater flexibility and convenience.
- Business loans: Banks may offer a wider range of business loan options, including term loans, lines of credit, and commercial real estate loans.
Established Reputation & Stability
Banks have a more established reputation and stability compared to credit unions for several reasons. They often have been around for centuries, giving them a longer history of serving customers and a more established reputation.
Banks also often have a wider reach than credit unions, allowing them to serve more states, and even countries. This wider reach also provides banks with more resources and larger budgets. The wider reach also increases brand recognition.
Banks are also subject to federal regulation and oversight, which can provide customers with greater confidence in their stability and reputation.
When To Choose a Credit Union vs. a Bank for Small Business Accounts
Choosing between a credit union and a bank for a small business account will depend on the unique needs of each business.
While credit unions may offer lower fees, personalized services, and a strong community focus, banks often have a larger network of branches and ATMs, more specialized services, and a more established reputation.
By carefully evaluating all of the available options, small businesses can find the financial institution that best fits their needs and supports their growth and success.