When choosing between a bank and a credit union for managing your business finances, understanding their distinct structures and offerings can help you pick the best fit. Here are the major differences between these two financial institutions and how to determine which one is right for your business.
Banks
Banks are for-profit institutions owned by investors, and they are obligated to deliver a profit to their shareholders. If you belong to a bank, you don’t have a say in its operations or procedures.
Pros of a bank
- Banks have multiple branch locations and ATMs.
- Banks can be utilized for both personal and business banking solutions, including business loans.
- Banks offer investment services and savings vehicles, including individual retirement accounts (IRAs), money market accounts, and certificates of deposit.
- Banks may have more advanced technology for customer use.
[Read more: A Guide to Small Business Banking]
Credit unions
Credit unions are owned by their members as not-for-profit organizations, which means people who use their financial services are more involved in managing credit union operations.
Pros of a credit union
- Credit unions usually have the lowest interest rates on loans, which can be a great option for businesses that are seeking financing.
- For savings products, credit unions may provide higher interest rates than banks.
- A credit union usually doesn’t charge a membership fee or levy monthly service charges.
Choosing the right financial institution is about finding a partner that supports your unique journey and goals.
Key differences between banks and credit unions
While both banks and credit unions offer financial services, their underlying structures and priorities have distinct differences. Understanding these distinctions can help you choose the best financial partner for your business.
Here are some key differences between banks and credit unions:
- Ownership and structure: Banks are for-profit corporations, owned by shareholders, and aim to maximize profits. Credit unions, conversely, are not-for-profit cooperatives owned by their members. This means credit unions often reinvest earnings back into member benefits, such as lower fees or better interest rates, rather than distributing profits to shareholders.
- Interest rates and fees: Due to their not-for-profit nature, credit unions typically offer lower interest rates on loans than traditional banks and higher interest rates on savings accounts. They also tend to have lower fees for services like checking accounts and wire transfers.
- Product and digital banking offerings: While credit unions have increasingly sophisticated digital tools, some smaller credit unions might have limited access to these services compared with their larger bank counterparts, which also typically have a broader range of financial products.
- Business loan offerings: Banks typically offer a wider variety of loan products and can accommodate larger loan amounts, along with more streamlined digital application and approval processes. Credit unions may have more flexible lending criteria, lower interest rates, and more tailored solutions for small business owners.
- Branch and ATM access: National and global banks generally have more extensive branch networks and ATM access. Credit unions typically have fewer physical locations; however, many participate in shared branch networks, allowing members to conduct transactions at other credit unions nationwide.
- Community focus: Credit unions are inherently community-oriented, focusing on supporting local businesses and fostering economic growth within their specific membership areas. This emphasis can translate to more personalized service and a deeper understanding of local market needs than larger, traditional banks.
[Read more: How to Apply for a Loan]
How to choose between a bank and a credit union for your business
Choosing the right financial institution is about finding a partner that supports your unique journey and goals. Before deciding on one, consider your specific service needs, your business’s projected growth, the institution’s digital capabilities, fees, rates, and its reputation for supporting businesses.
When a bank may be best for your business
A traditional bank might be a better fit if your business requires a broader range of advanced financial services, extensive digital tools, or access to larger loan amounts. Banks invest heavily in sophisticated technology and typically have wider branch and ATM networks, which can be crucial for businesses with diverse geographical needs or frequent cash transactions. They’re also generally better positioned to provide larger commercial loans, making it a good fit for rapidly scaling businesses or those with complex financial needs.
[Read more: How to Protect Your Bank Account from Hackers and Fraud]
When a credit union may be best for your business
A credit union might be ideal if your business prioritizes personalized service, community connection, and cost efficiency. According to Kyle Curtis, Senior Vice President of Public Engagement and Communications at America First Credit Union, credit unions typically offer lower fees and more favorable interest rates, allowing business owners to invest those savings into operations and employees.
Credit unions tend to offer more personalized service, financial education, and local market knowledge, Curtis added.
If you’re considering joining a credit union, you’ll first need to determine if you’re eligible to join. As Curtis notes, each credit union has specific membership criteria based on location, industry, and/or organizational affiliation. From there, as you would with any major business decision, do your due diligence to make sure it’s a good fit.
“Ensure that [the] credit union has the capital, services, people, and technology to meet [your] needs,” said Curtis. “Research the credit union’s reputation, talk with other business owners, and read reviews and ratings.”
Learn more about managing your business finances in our guide to accounting basics.
Lauren Wingo contributed to this article.
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