Unlike traditional banking institutions that are often profit-driven, credit unions have a unique ethos. They are not just in the business of banking; they are in the business of helping people. The cooperative, member-owned structure of credit unions is centred around a mission to serve their members and their communities alike. This International Credit Union Day, we explore their role in helping distressed businesses thrive.

What are Credit Unions?

When traditional lenders may turn away, credit unions stand tall. Their financial standing represents much more than loans. Credit unions are nonprofit financial institutions designed for use by members who share a common bond. This could be based on location, i.e. for business owners residing in the same region, or by industry, i.e. businesses that operate within a specific sector. Sometimes, companies affiliated with the same labour unions may also form a credit union. 

Given that they are situated within local communities, they are also called ‘community banks’. Credit unions often act as a trusted partner for business owners who find themselves in financial hardships. They understand the unique challenges and vulnerabilities that businesses face and tailor their services to address these specific needs.

The role of Credit Unions in supporting distressed businesses

In the last few months, the UK has witnessed the highest rate of insolvency since 2009. Rising interest rates, high inflation and the cost of living crisis has placed many small and medium sized businesses at risk. Industries like hospitality, retail and construction are the worst hit. 

During such a time, credit unions have served as a lifeline for many struggling companies. Their mission, focused on financial inclusion, community support, and serving the needs of their members aligns seamlessly with the challenges faced by distressed businesses. 

Moreover, the flexibility inherent to credit unions sets them apart from conventional banking institutions. They recognize that the circumstances surrounding financial distress are often unique and multifaceted. This understanding enables them to provide flexible solutions tailored to the specific needs of businesses within the community.

How do Credit Unions support distressed businesses?

Unlike conventional banks, which frequently adhere to rigid lending criteria, credit unions adopt a more holistic approach when evaluating the financial health of their members. For a distressed business, this means access to business loans, a line of credit to manage short-term cash flow challenges, or an emergency relief fund to address immediate crises. They may also offer flexibility and liquidity, allowing businesses to access funds when required. This adaptability in loan products and criteria is a significant advantage for first time business owners as well.  It enables distressed businesses to address unforeseen challenges swiftly, ultimately preserving their continuity.

The application process for credit union loans is often less intimidating and more straightforward as compared to larger financial institutions. They frequently offer competitive interest rates and favourable terms, which is a huge advantage for businesses in need.

How does Credit Union financing enable long term success?

Credit unions view their members as partners in a shared financial journey, not just as customers. Beyond financial assistance, they often provide financial counselling and mentorship programs. These programs empower business owners to make informed decisions, manage their finances effectively, and develop sustainable growth strategies.

Plus, given their place within the local community, credit unions also guide business owners with expert advice and specific guidance. They understand the unique challenges and opportunities presented by the local economic landscape. This understanding and the relationship it builds transcends the traditional customer-provider dynamic, creating a sense of partnership and shared success. 

In celebrating International Credit Union Day, we applaud their unique ethos that forms an extremely critical part of the business world. For more resources that can empower your financial journey, visit Administration List.