Access to finance is a critical issue for many small businesses. With high operating costs and tight margins, most SMEs find it difficult to fund investments in growth, infrastructure and people out of their own cash reserves.
Borrowing money in the form of loans or various types of credit arrangements is the obvious answer. Yet according to the British Chambers of Commerce, accessing finance is getting harder for SMEs. In a survey of members, 70% said they hadn’t accessed finance in the past 12 months, and it is the very smallest firms that are least likely to go looking.
This is a symptom of the cost of borrowing rising sharply since 2021 as interest rates have climbed. Lenders have also become more cautious. The acceptance rate from SME loan applications has fallen from 80% in 2018 to just 50% in 2023.
In this environment, SMEs often have no choice but to look for alternatives to mainstream sources of finance like banks. One option that is gaining traction is credit unions.
Credit unions are not-for-profit financial cooperatives owned and operated by their members. Although they mainly focus on providing consumer finance, their role in plugging the gaps in small business finance has grown significantly in recent years,
With a focus on providing fair, affordable, ethical finance over and above the profit imperative, credit unions can play a vital role in the market for small businesses. Here are five ways they can make a difference.
Community-based crowdfunding
To borrow from a credit union, you have to become a member. This isn’t as restrictive as it seems. For one, it usually simply means applying for membership as part of the finance application process. And once you join, it opens the door to many benefits.
More than just taking out a loan, you are joining a local partnership of businesses, entrepreneurs and economic development stakeholders designed to provide mutual support. It puts crowdfunding on a more personal level, as you can meet and work with people interested in backing your plans, and explain your vision to them.
Flexible terms and personal service
With their ear close to the ground in their local community, credit unions can provide highly personalised levels of support and service on flexible terms. They are ideal for taking out small to moderate loans, including the kind of small, short-term microloans that most large lenders wouldn’t entertain.
Critically, as not-for-profit organisations, credit unions trade on offering value to their members, which usually means lower fees and better rates than you can get from mainstream lenders. They also often offer tailored terms to suit the cash flow requirements of your business. And credit unions can often provide loans with minimum collateral requirements, which is a great help to start-ups looking to get off the ground.
Support beyond finance
Finally, being part of a credit union can help your business in numerous ways beyond accessing finance. It gives you access to a local support network which, as a creditor to your business, then has a vested interest in helping it thrive.
This support can come in the form of credit unions leveraging their network to provide training and education opportunities in the form of workshops, personalised financial counselling, mentorship programmes and more. As strong community organisations, credit unions can also play a role in advocating for small businesses, for example by building ties to local and national government, backing marketing initiatives and fostering networking and collaboration.
Get in touch with our team to find out more about financial support for SMEs. Or, if you are part of a credit union, learn how our experts can help put you on a stronger footing to provide services to business members.
