How Credit Unions Help Finance Businesses to Succeed and Compete

By Kenneth Lowy, Director of Sales & Strategic Alliances, NewtekOne
November 14, 2023

In today’s environment, credit unions are seeing small business owners across the country face many of the same challenges about their operations and finances:

• Is their cash flow suffering due to an economic downturn?
• Are they having a problem with cash flow due to inflation and rising expenses?
• Are they having a problem with cash flow due to increases in interest rates?
• Do they need more working capital immediately for their business?
• Do they need funds to rehabilitate, reposition, purchase real estate, or grow their business?
• Is their lender pushing them to refinance?

If you have heard small business owners answer yes to any of these, then keep reading. A small business loan could be the vital solution credit unions can offer to ensure small business owners continues to grow and thrive.

Term Loans – Lump Sums of Cash When Small Businesses Need It Most

Term loans, a popular financing option for small business owners, provide a reliable and affordable way to fund enterprise operations.

These loans offer fixed interest rates and predictable monthly payments, allowing businesses to seamlessly budget and plan for their expenses. With payback terms ranging from 10 to 25 years, businesses can choose the repayment schedule that best aligns with their cash flow needs. The loan amounts range from $1,000 to $15 million, providing ample capital to fuel growth and expansion.

Should Small Businesses Apply for a Term Loan?

Term loans are an excellent financing option for business owners who need funds now. By gaining quick access to a lump sum of cash, business owners can make much larger purchases and investments (e.g., real estate, human resources, equipment, and inventory). Additionally, the fixed interest rate and predictable repayment schedule make term loans easier to pay off and establish a positive credit history.

Today’s climate of rising costs and ongoing inflation increases the likelihood of unexpected business expenses – which makes a reliable source of working capital a must-have to achieve success.

Lines of Credit – Funding Available On Demand

A line of credit (LOC) is a form of asset-based financing designed to solve a business owner’s short-term capital needs, helping them meet payroll, pay taxes, and cover other operational expenses.

These are commonly backed either by accounts receivable or inventory.

LOCs backed by accounts receivable allow business owners to borrow money against their outstanding customer invoices. Many lenders’ receivable lines supply cash for invoices due 30, 60, or even 90 days out, and they’re perfect for businesses with a high volume of invoices or long payment cycles.

In contrast, LOCs backed by inventory let business owners borrow money against the value of their inventory, typically a percentage of total value. Lenders use most of a company’s non-perishable inventory to maximize loan value. Additionally, all inventory lines of credit have renewable one-year terms with up to a 50% advance rate, which can vary based on lender preferences.

Should Small Businesses Apply for a Line of Credit?

Lines of credit are a valuable source of capital for business owners to manage cash flow on an as-needed basis. Essentially, lines of credit provide a financial safety net by providing short-term funding to counter unexpected expenses and revenue shortfalls. Like term loans, lines of credit can also help businesses grow a positive credit history by making regular, on-time payments and demonstrating their ability to manage debt effectively.

Supporting Small Business Owners Moving Forward

As a credit union, you can help small business members fund their growth, stay competitive in their industry, and achieve their business’s goals in this economy when they have access to capital when they need it most. Both term loans and lines of credit help them establish a positive credit history with repayment schedules and provide access to valuable funds.

The next step is helping small business owners determine whether they need immediate access to working capital with a term loan or need an ongoing stream of funds available on demand with a line of credit.

Once the type of financing is determined, your credit union will work with them to find the most ideal terms and competitive interest rates for their needs.

Connect with NewtekOne to learn more.

About NewtekOne

Businesses expect more and NewtekOne (NASDAQ: NEWT) delivers core solutions that help businesses grow. As a partner, NewtekOne provides SBA lending services, business financing, merchant processing, payroll, insurance and website/technology services that credit unions can offer to members.