How to Start a Credit Union

start a credit union

Starting a credit union can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful credit union.

Importantly, a critical step in starting a credit union is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.

14 Steps To Start a Credit Union:

  1. Choose the Name for Your Credit Union
  2. Develop Your Credit Union Business Plan
  3. Choose the Legal Structure for Your Credit Union
  4. Secure Startup Funding for Your Credit Union (If Needed)
  5. Secure a Location for Your Business
  6. Register Your Credit Union with the IRS
  7. Open a Business Bank Account
  8. Get a Business Credit Card
  9. Get the Required Business Licenses and Permits
  10. Get Business Insurance for Your Credit Union
  11. Buy or Lease the Right Credit Union Equipment
  12. Develop Your Credit Union Marketing Materials
  13. Purchase and Setup the Software Needed to Run Your Credit Union
  14. Open for Business

 

1. Choose the Name for Your Credit Union

The first step to starting a credit union is to choose your business’ name.  

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your credit union:

  1. Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
  2. Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
  3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your credit union.

 

2. Develop Your Credit Union Business Plan

One of the most important steps in starting a credit union is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

  1. Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your credit union.
  2. Company Overview – this section tells the reader about the history of your credit union and what type of credit union you operate. For example, are you a corporate, community, state-chartered, faith-based, or a federal credit union?
  3. Industry Analysis – here you will document key information about the credit union industry. Conduct market research and document how big the industry is and what trends are affecting it.
  4. Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
  5. Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
  6. Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
    • Product: Determine and document what products/services you will offer 
    • Prices: Document the prices of your products/services
    • Place: Where will your business be located and how will that location help you increase sales?
    • Promotions: What promotional methods will you use to attract customers to your credit union? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
  1. Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
  2. Management Team – this section details the background of your company’s management team.
  3. Financial Plan – finally, the financial plan answers questions including the following:
    • What startup costs will you incur?
    • How will your credit union make money?
    • What are your projected sales and expenses for the next five years?
    • Do you need to raise funding to launch your business?

 

3. Choose the Legal Structure for Your Credit Union

Next you need to choose a legal structure for your credit union and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the owner of the credit union and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to open a credit union together. The partners share in the profits and losses of the business. 

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a credit union include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a credit union is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your credit union, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

 

4. Secure Startup Funding for Your Credit Union (If Needed)

In developing your credit union business plan, you might have determined that you need to raise funding to launch your business. 

If so, the main sources of funding for a credit union to consider are personal savings and checking accounts, family and friends, credit card financing, business loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a credit union that they believe has high potential for growth.

 

5. Secure a Location for Your Business

When looking for a location for your credit union, there are a few factors to consider. Credit unions need to be located in areas that have a lot of people who can use their services. Credit unions should also be close to public transportation so that members can easily get to and from the credit union. Finally, credit unions should be located in an area that will be affordable for the business. 

 

6. Register Your Credit Union with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

 

7. Open a Business Bank Account

It is important to establish a bank account in your credit union’s name. This process is fairly simple and involves the following steps:

  1. Identify and contact the bank you want to use
  2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
  3. Complete the bank’s application form and provide all relevant information
  4. Meet with a banker to discuss your business needs and establish a relationship with them
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your business plan and financial model in hours.

8. Get a Business Credit Card

You should get a business credit card for your credit union to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

 

9. Get the Required Business Licenses and Permits

To open a credit union in the United States, you will need to obtain a credit union charter from the National Credit Union Administration (NCUA). You will also need to obtain a license from your state’s banking regulator. In addition, you may need to obtain other licenses and permits depending on the products and services you offer.

 

10. Get Business Insurance for Your Credit Union

The type of insurance you need to operate a credit union will vary depending on the state.

Some business insurance policies you should consider for your credit union include:

  • General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
  • Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
  • Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
  • Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
  • Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
  • Professional liability insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs. 

 

11. Buy or Lease the Right Credit Union Equipment

To run a credit union, you need the following equipment:

  • A computer with internet access
  • A printer
  • Software to manage your credit union’s finances
  • A scanner
  • A fax machine
  • A secure location to store your credit union’s records and funds

 

12. Develop Your Credit Union Marketing Materials

Marketing materials will be required to attract and retain customers to your credit union.

The key marketing materials you will need are as follows:

  1. Logo: Spend some time developing a good logo for your credit union. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
  2. Website: Likewise, a professional credit union website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you..
  3. Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your credit union.

 

13. Purchase and Setup the Software Needed to Run Your Credit Union

To run a credit union, you will need accounting software to track your income and expenses, as well as banking software to manage your customers’ accounts. Additionally, you’ll need customer relationship management (CRM) software to manage your customer interactions.  

14. Open for Business

You are now ready to open your credit union. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

 

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How to Start a Credit Union FAQs

There is no one size fits all answer to this question because the difficulty in starting a credit union depends on many factors, including the location of the potential business, the experience level of the management team, and the availability of startup funds. 

The first thing to do is find like-minded individuals who share your vision and are willing to pool their resources together. Once you have a group of committed individuals, you'll need to file paperwork with your state's financial regulator to establish your credit union. The process can be tedious, but if you follow the steps above, you should be able to open your own credit union without too much difficulty. 

There are a few ways you can open a credit union with no experience. You can start by contacting your local credit union or the National Credit Union Administration (NCUA). The NCUA is a government agency that charters and supervises federal credit unions. Additionally, you can speak with someone who has experience starting a credit union.

There is no one size fits all answer to this question because profitability depends on many factors. However, since credit unions are owned by their members, profits are reinvested into them to be used to better serve their members. So, the more members a credit union has, the more profitable it may become. Community based credit unions and basic service credit unions are also profitable. 

Different types of credit unions differ in start-up costs. Typically, it runs from $5,000 to $50,000 to open a credit union, depending on the state. This is because there are many fees associated with starting a credit union, including the initial application fee, chartering fees, and bonding fees. States with lower costs of living have a lower cost of starting a credit union.

One of the ongoing expenses for a credit union is its insurance premiums. Other ongoing expenses include credit union staff salaries, occupancy costs, and technology expenses.

A credit union makes money through the interest it charges on loans and the fees it charges for services. Another way a credit union can make money is by issuing shares of ownership in the form of dividends. Full-service credit unions also make money by loaning money to each other.

A credit union can be quite a profitable financial institution because it is a member-owned, not-for-profit cooperative. This means that the members share in the profits generated by the credit union. Basic credit unions also often have lower fees and interest rates than other types of financial institutions. This makes them a more affordable option for people who need to borrow money. 

Credit unions sometimes fail because they are not able to keep up with the competition from banks. They may also fail if they do not have a good business model or if they are not well managed. 

Another reason many credit unions may fail is because they are not able to generate enough revenue. This can be a problem if the credit union does not have enough members or if it is not able to attract new members. Finally, credit unions may also fail if they are not able to control their costs.


 

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