Across the country, credit unions carry out important work to support their members and communities, and carry out their mandate. There are many families and individuals who are fortunate that they can turn to their credit union for a mortgage, a no-fee bank account, retirement savings plans, and the list goes on.
Yet, over the past few years a perception has emerged that credit unions are somehow part of the alternative lending marketplace when it comes to small business loans.
However, taking nothing away from the important and valuable work that credit unions carry out, the truth is that when it comes to small business loans, credit unions are NOT alternative sources of funding. Instead, they typically function more in a bank-like capacity and have very high standards for loan approval.
For example, here are some of the reasons why a credit union may reject a small business loan application:
- The proportion of balances to credit limits on revolving accounts — such as a line of credit — are deemed to be too high.
- The amounts that are owed on various accounts are deemed to be too high, regardless of the proportion of balances to credit limits.
- There have been too many credit inquiries in the last few months. This is particularly damaging to applicants with a limited credit history, since there are typically fewer positive factors available to offset this negative factor.
- There is a history of late payments. Generally, the longer the period of delinquency, the more damaging it is to an applicant’s credit score.
- There is not enough of a credit history to establish what the credit union deems to be “credit worthiness”.
- There is a general lack of historical loan or debt information. This is one of those bizarre factors that applicants cannot understand, because they’re likely being penalized for paying cash instead of using their credit card, for NOT taking out a student loan, and for acting in a seemingly financially responsible manner. Often, for credit unions just as it is with banks, no loan or debt news isn’t good news. On the contrary, it may be a red flag.
- More than one consumer finance accounts listed. Credit unions, again just like banks, view consumer finance companies as “lenders of last resort” – when in fact this is often NOT the case at all.
- There is insufficient collateral to secure the loan.
These are just some of the factors that may, in most cases, derail a small business loan application at a credit union. As you may have noticed, these are the same reasons that may block a small business loan at a bank.
If you’re in search of a small business loan and concerned your bank or credit union may reject your application, we invite you to contact Mulligan Funding today.
Call Mulligan Funding at 855-326-3564 to discuss your financing options today!
The information shared is intended to be used for informational purposes only and you should independently research and verify.
Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.