Where would I bank?

Where would I bank if I were a small business owner?
If I were a small business owner, I would certainly consider my local community bank but only after checking its financial condition. But, a community bank probably would not be my first choice.

I would go to a local credit union. Many credit unions now offer a full range of small business banking services like credit card merchant accounts, remote deposit capture, term loans, and lines of credit in addition to a full set of consumer banking products and services.

Full and fair disclosure: I have a checking account and line of credit with a local regional bank. I have three credit union accounts and one credit card account. My primary financial institution is a credit union.

Here’s why I like using a credit union.

First, my credit union deposits are insured by an agency of the federal government to USD$250,000, just like banks. My credit union is examined annually by federal examiners, just like banks. My credit union has its financial statements audited by an independent certified public accounting firm, just like banks.

My credit union is a member of a credit union shared branch cooperative that allows me to transact business at any one of over 2,500 credit union branches across the country. I have to drive by four shared branch offices, where I could conduct the transaction, when I visit my credit union’s office. My credit union is a member a free, no fee ATM network that has over 26,000 machines worldwide.

I don’t think banks can offer all of these services.

For those of you who have seen your interest rates rise on a credit card or loan from a bank, this next difference might make you blink.

Federal credit unions, they have the word “federal” in their name, have a maximum interest rate on any loan or credit account of only 18.0% APR. It is set by the federal agency that regulates them and has been at this limit for maybe 25 years or more.

No 9.0% interest today and 29.9% tomorrow with a federal credit union. Federal credit unions can increase interest rates; just not to such onerous levels as some banks have done recently.

I can’t speak about state chartered credit unions because each state has its own laws. In California, for example, there is no limit on much interest a credit union may charge.

Credit unions are nonprofit financial institutions. They are owned by the depositors, no out of state shareholders or Wall Street investors to answer to. To date, there has never been a hostile takeover of one credit union by another credit union.

Credit union typically charge less interest on loans and pay higher on deposits. Although with interest rates on deposits as low as they are now, the deposit interest difference may not be all that significant.

Not all credit unions offer business services. The larger credit unions that have a community charter usually offer some range of business services. A community charter means anyone who lives, works, goes to school, or worships in a specific geographic area may join the credit union.

In my case, I am eligible to join three, very large, community based credit unions. These credit unions have offices within less than five miles of my home and they some form of business services. These credit unions all have assets over USD$1 billion which puts them in the category of a regional bank.

One of the nice things about a credit union is that its decisions makers are usually local as well. That may be nice when you have a problem and you do not have the time to deal with an automated phone center.

Just think how convenient it would be, you could speak with the President and Chief Executive Officer or other decision maker about your problem instead of being ignored. You may not receive the answer you want but at least you will have had a prompt face-to-face hearing by a live person.

Finding a credit union is fairly easy. You can do it from the comfort of your home. This is a low tech solution. Open the local Yellow Pages to credit unions; this will give you a list of credit unions in your immediate area. Then, you can go to the Internet and search the list for a credit union that offers the business services you need and want.

I do not want to paint a picture that shows credit unions are near perfect and that banks are not small business friendly. There are probably many fine community banks out there that out small business friendly; I may not have met them yet.

Some credit unions, like banks, are suffering with the current financial crisis. For the most part, credit unions were not involved with sub-prime mortgages and they are not involved with commercial real estate which will be the next big financial mess for banks.

All federal and most state licensed credit unions have to post their financial condition in their offices or make it available to the public on a monthly basis. Take a look at the information; it can be very informative.

Here are some simple calculations that will give you an idea of how healthy the credit union may be. Divide total reserves by total assets; if the number is 7% or greater, this is a good indication of financial health. Divide delinquent loans by total loans, if the number is less than 2%, this is a good indication also.

Good luck on your search and analysis.

Be well and stay happy.