The Different Sources of Loans

Credit unions

Credit unions are not-for-profit “members-only” financial cooperatives with members sharing a common affiliation, such as working for the same company, belonging to the same union, or being members of a specific branch of the armed forces. Credit unions accept deposits and provide a variety of financial services, including savings and checking accounts, credit cards, and more. “Profits” from operations are returned to credit union members in the form of dividends on savings, lower loan rates than commercial banks offer, and lower service fees.

According to the National Credit Union Administration (NCUA), there are currently more than 10,000 credit unions in the United States controlling more than $470 billion in assets. Some of the largest credit unions include Pentagon Federal Credit Union, Boeing Employees’ Credit Union, Orange County Teachers Federal Credit Union, American Airlines Federal Credit Union, and GTE Federal Credit Union. You may want to consider your own affiliations and join a credit union if you’re eligible.

Credit unions are personal finance oriented but may handle very small business needs or equipment loans.

Finance companies

A finance company is a business that specializes in making loans to individuals and businesses. While some finance companies do not limit the use of funds received under their loans, other finance companies ‘” particularly captive finance companies (finance companies that finance only products manufactured by their parent companies) of manufacturers that loan money to help customers buy the company’s products [for example, GE Capital and General Motors Acceptance Corporation (GMAC)] ‘” do limit how loan proceeds are used.

In general, finance companies charge higher interest rates than banks, savings institutions, and credit unions, because they are willing to make loans to higher-risk borrowers. Captive finance companies often offer special rates on the products their parent companies produce, and they’re definitely worth a look when you have specific equipment needs.

Familiar finance companies include Advanta, LendingTree.com, Household International, NOVUS Financial, and AmeriCredit Corporation.

Finance companies are a good source for term loans and poor credit risks. Beware of them, however, and be sure to check them out with some of their borrowers because they can have tough terms.

Small Business Administration

Although the Small Business Administration (SBA) doesn’t do much direct lending itself, it guarantees millions of dollars in business loans to small businesses every year. These loans, processed through commercial banks and other approved private-sector lenders, are available in amounts from a couple of thousand dollars up to $2 million.

SBA loans are good when you are looking for long-term debt money, but you can expect to tie up all of your assets as security for it. Then, if you need more credit (for example, when your receivables grow faster than you expect) in a couple of years, you will have no place to go for it except to do an entirely new deal with your SBA lender, or somehow pay off your loan and start from scratch.