Since financing and financial transactions are critical elements of any small business, it’s important to make the right choice of a financial institution for your small business to work with, and there may options available that you haven’t considered. A survey of more than 10,000 Canadian small business owners revealed that credit unions often outperformed banks in terms of providing the best overall financial services for entrepreneurs. Here are some of the relative advantages and disadvantages of banks compared to credit unions.
Advantages and Disadvantages of Banks
It’s important first to understand the basic structural differences between banks and credit unions. Banks are for-profit financial institutions with the primary goal of returning profits to shareholders. In contrast, a credit union is a not-for-profit institution, owned by its members and established for the primary purpose of providing its members with credit.
Banks typically provide a much fuller range of financial services, including things like brokerage accounts. They also tend to offer easier accessibility, with most banks having many more locations and ATMs than credit unions, which typically serve only a small region. Therefore, it’s important to consider the particular needs and operational scope of your small business. As of 2016, credit unions are most prominent in Western and Atlantic Canada, although recent regulatory changes enable them to expand beyond provincial borders and operate nationally.
A primary disadvantage of banks is that most customers report that banks generally charge higher fees than credit unions, and offer lower interest rates on interest-bearing accounts.
Advantages and Disadvantages of Credit Unions
Among the main advantages credit unions offer is the fact that credit unions tend to be easier sources for a loan. Many small business owners report that credit unions are more willing than banks to consider a broad range of factors, such as the performance of their small business, making credit more readily available. Other advantages, already noted, include their typically lower banking fees and the fact that they may offer significantly higher interest earnings on interest-bearing accounts. Plus, many customers report that credit unions just seem friendlier overall than banks. They usually rate higher than banks on customer satisfaction surveys.
Disadvantages of credit unions mirror the advantages banks offer a wider range of financial services and better geographical coverage, making them more convenient if your small business has locations in several regions. If your small business needs high-end business services such as foreign exchange services, a major bank may be your best choice.
Making Your Finances Easier
One factor in your decision may be the ease of connecting your bank accounts with your accounting software, so check to see if your bank or credit union offers this service. Most financial institutions do, and new small business accountants and bookkeepers appreciate the convenience of being able to download and easily match all business financial transactions with online accounting software such as QuickBooks Online. Once your banking and credit card accounts are connected to QuickBooks Online, it’s a quick and easy process to log, match, and categorize all your financial transactions. This helps save time and ensures better accuracy in your financial record keeping.