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Starting a Credit Union – What Do You Need to Know

Credit Union (1)

There are not many credit unions around. In fact, not even one has formed in the recent past. So, if you are planning to start a credit union, then you have got a thumbs-up. However, let us tell you, it’s not that simple. There are much existing credit unions with membership fields that may cause an overlapping problem for new credit union owners. So, it is both important and difficult to start a credit union. You can start one, as long as you have a ‘Common bond’. Today, we will walk you through the steps of starting a credit union in your state.

How to Start a Credit Union?

Credit unions are especially beneficial to low-income earners. People who have a lower income find it very difficult to get a loan. Credit unions offer a real and fruitful alternative to bank loans. Credit unions are run by a volunteer board of members, elected by each other. They are generally financial institutions owned and managed by the board of directors.

Credit unions operate by giving affordable and flexible loans while encouraging the credit union members to save. The maximum a credit union can charge an interest rate is 12.7%. The loan interest is charged on an ever-reducing balance, which means that every month your interest rate will come down as you clear the due amount. What’s more, you will not be penalized for premature loan closure either unlike bank loans.

You can be anyone, a business partner, working in a company for the same employer or belonging to the same club, to start credit union you definitely don’t need a special law or qualification. You can make this a full-time business or a part-time the choice is yours.

Credit Union Account Background

Since credit unions are owned, set up and controlled by members of the same community, small income earners find them more reliable and trustworthy. They offer savings and great value loans. Credit unions encourage financial literacy, advice members on financial management and handle financial exclusions. You can get out of a debt and save money at the same time via a credit union account.

Even children are encouraged to develop savings by becoming a member in a credit union as Young Savers. Once your credit union starts to grow, you will be able to offer a broader range of services, such as introduction to current accounts, Children Trust Funds, Benefits Direct, ISAs and so on.

Credit Unions are known to uplift the community and make it more sustainable as their financial support can build the local economy.

Steps You Need To Follow To Setup A Credit Union

Step 1: Bringing A Group Together

You need a board of members, the people who will help steer your credit union. The group should include around 15 – 20 members, who will be delegated with various roles and responsibilities, such as business planning, financial planning, funds allocation and setting up company policies.

The group will be known as credit union’s first officers. You have to appoint people having different skill sets, including financial management, accountancy, general business management, marketing and advertising, computer, counseling, and bookkeeping. You may also need people from the legal background.

Step 2: Look For Potential Support

You cannot open a credit union today and expect people to join in hundreds by tomorrow. People should believe in you and you should gain their trust before they invest their money. You have to find out how the current market is. You have to see if there are customers who are looking for the credit union. You should also jot down what kind of services people expect from credit unions.

You can ask local people to fill in non-binding pledge forms, one of the best ways to determine the number of a support credit union in your area gets. You can also find out if people would like to volunteer for your business, either in the formation phase or when the business is running.

Step 3: Establish A Business Plan

A business plan is as important as the business itself. The process of developing becomes even more crucial. A business plan cannot be formed in a day or two. It should take weeks to gather all the necessary information, facts, and data to build a robust business plan. Your business goals, expected levels of income and expenditure, short-term goals, long-term goals, mission and purpose, marketing strategy, budgeting, office set up and other expenses should be included in your business plan.

Your business plan should be precise enough to let you measure and compare each completed process with it. It should be like a blueprint of how your business is going to be operated. Your business plan should at least project all crucial elements during the first three years of your startup.

Step 4: Establish A Common Bond

A Common bond will let you convince the Financial Services Authority that the proposed membership shares a common purpose and covers and operates in a particular area. A diverse mix of people should form a common bond association. Any person who lives or works in the common bond area is eligible to join the credit union. Before you develop your common bond, make a list of credit unions in and around your area. You have to determine your bond accordingly.

Step 5: Arrange For Sponsors

Sponsorships give you the credibility to grow in a marketplace. A sponsored credit union will demonstrate trust, stability, and safety. These three factors are needed if you want people to save their money in your credit union.

More the sponsors you obtain, the better will it be for your business, remember that. Also, sponsorships can also provide you with the necessary start-up fund to let you sail through the first few years smoothly.

Step 6: Establish Policies, Procedures, Training, And Support

You have to form a compelling guideline that would outline the policies and procedures to operate the credit union ethically. The policies will answer questions like, who should be/ can be a member, which member category are eligible for a loan, how the finance is managed and what should be the minimal and maximum loan amount. Separate rules and guidelines should be defined on loans and percentage of loans. Your policy and procedure guideline should abide by the legislation completely.

Once this is set, you will have to start training the staffs. The training and support will differ based on the function of the business and designation of the staff. Common training include governance training, business management, and effective operations training, training on financial management, customer handling and internal audit.

The policy manual will be the main source for training and support for new volunteers, members and other staffs.

Step 7: Elect Your Board Of Directors

Identifying the board members is a crucial step. Your board members should be knowledgeable, expert people from respective fields. They will have overall control of the credit union. You have to assign a Chairperson or President, a Treasurer and Joint Treasurer, a Secretary and a Vice-President.

You will also have to identify the credit committee members who would be responsible for loan applications and their said policies. The credit committee should consist of at least 4 members which can go up to 6.

Step 8: Register Your Credit Union

In order to legally operate as a reliable credit union, you must submit an application for authorization to operate to respective Financial Service Authority. Initially, you will be registered as Industrial and Provident Society credit union and ,you will get the authority to accept deposits later on. After you get this authority, you can start running the business.

Once you have done all the needful work and obtained the necessary licenses and permits, the real drill starts. You have to launch the business successfully. Commendable marketing and promotion strategies will cater to good business growth. Use all possible ways to promote your credit union.

Don’t just stop with the traditional marketing strategies; use the contemporary ones also, such as Website marketing, Social Media Marketing, Google Tools and other Digital Marketing tools.

You should be earnest in marketing your business. Use church bulletins, community magazines, local shops and supermarkets, and springboards to let your community know that you are serviceable.

How Can You Market A Credit Union – State Its Advantages

Credit union is the biggest and safest alternative to commercial banks. It thrives by serving the members that pay out dividends to its members, unlike banks that pay dividends only to stockholders. Although credit unions serve a particular community, the members are benefited in several ways. They are:

  • Members will be a part-owner of the credit union. They are not treated as customers, but rather as members with dividend rights and voting rights.
  • Credit unions propose lower fees than commercial banks, thus gives an opportunity for members to save more.
  • Credit unions offer lower interest rates on loans than traditional banks. The loan processing is also simple and quick, unlike commercial banks that accompanies with long wait period.
  • As credit unions pass on surplus funds to their members, customers get to enjoy higher interest rates on their deposit accounts.
  • Since credit unions are non-profit organizations and owned and run by members from a common community, their first priority always remains to serve the community and stay united.
  • Credit unions are smaller organizations than banks, so it is obvious their service will be faster, personalized, and efficient service.

Any business can grow, sustain, and make commendable profits if the members are diligent and focused. That being said, the six essential ingredients that you must add to improve and accelerate your business include a vision for growth, leadership and communication skills, a mix of income groups and ages to create a diverse bond, benefiting sponsorships, projecting the right image and a strong and iron clad board of directors.

Hope our article proves to be useful when you set up your credit union. Please do raise your doubts and questions in the comments below. They will be duly answered.