Last winter, when Michael Webb, president of U Fuel, in Eau Claire, Wis., sought a $50,000 credit line for his two-year-old automated-fueling-systems business, he got it from an unlikely source: a local credit union. Credit unions (nonprofit financial institutions owned by their members) are best known for consumer and car loans. But lately, their lending to members for business purposes has increased as more and more entrepreneurs have had problems borrowing from banks.
Of the 12,960 federally insured credit unions in the country, only about 1,000 are actively making so-called member business loans (loans of more than $25,000 underwritten without homes or other personal assets as collateral). But during the first half of 1992, this category of lending grew by 15%, according to the National Credit Union Administration, in Washington, D.C., while total credit-union loans were virtually flat. It's hard to know what portion of other personal loans made by credit unions are, in reality, used in businesses (the data aren't broken out), but most credit-union officials think it constitutes a big part of their lending.
Credit unions don't lend to just anyone. To qualify, you need to be a member. Still, don't expect the credit requirements to be too different from those of banks, says Ken Robinson, president of the National Association of Federal Credit Unions, in Arlington, Va.
By calling several credit unions, you should be able to determine which ones you can join and whether they'll consider business loans. Specific policies may vary from institution to institution, but here are some basics to expect:
* Documentation. Like banks, credit unions will require detailed information on the finances of your business, including a balance sheet, income statement, and cash-flow analysis.
* Limits on borrowing. While credit unions are accustomed to making loans of less than $50,000, small credit unions, in particular, are restricted in how much they can lend to a single member. The current ceiling is 15% of a credit union's reserves or $75,000, whichever is higher.
* Maturity. The term of the loan is supposed to be tied to the business purpose and the borrower's creditworthiness. However, maturities aren't intended to be longer than 12 years (except for real estate). -- Bruce G. Posner