Small Credit Unions in the USA
Small credit unions are similar to mutual aid funds. People or companies of the same neighborhood, profession, occupation, social status group to solve their financial problems themselves. They are thrown into the “common stock” (mutual financial assistance fund) and they themselves can borrow a part of this common money at interest. For example, farmers can create an agricultural small credit union and borrow from it for sowing.
In a credit union, you can get a loan not only for business, but also for personal needs. The rate is usually higher than in banks, but it is easier to get it. Conversely, you can invest in such a union and get more income than a bank deposit. But such investments will not fall under the protection of the Deposit Insurance Agency. Credit union can also raise loans from third-party companies, even if they are not their shareholders.
How to create a small credit union?
Find like-minded people
Both ordinary people (at least 15 interested persons must gather) and companies (at least 5 legal entities) can unite in a small credit union. There are also mixed type cooperatives – they include both individuals and legal entities. In this case, their total number should not be less than 7. After the establishment of the union, the circle of shareholders can be expanded.
Agree on the rules
It is necessary to immediately determine the specialization of the union – whether this credit union will work, for example, with entrepreneurs, only with farmers, or with all consumers. It is important to do this at the very beginning because the rules differ for them.
Determine the financial model and tariff policy
The members of the credit union decide for themselves on what conditions it will work: at what rate it will attract funds, at what rate and in what amount to issue loans, and also what will be the minimum share – the share that its participants contribute to the capital. The decision depends on all the participants in the facility.
Prepare a set of documents
It is necessary to establish the procedure for admission to the union, to stipulate the rights, duties and responsibilities of shareholders, to determine the structure and powers of the governing bodies. All these decisions should be included in the small credit union status.
Participants must pay membership fees and shares. Shareholders who have free money can contribute it to the mutual financial assistance fund – it is from these funds that the small credit union will issue loans to other shareholders.
How does small credit union work?
The credit union forms a mutual fund.
In addition, the small credit union attracts at interest the personal savings of its members, as well as loans from legal entities. A mutual financial assistance fund is created from these funds.
Shareholders can borrow from this company at the expense of the mutual financial assistance fund: companies – for business development, individual – for personal needs.
Can a credit union become a profitable business?
A small credit union is a non-profit organization, that is, it is not created for profit. It is not engaged in trade, production, or any service. Their main function is to organize mutual financial assistance within the union: to accept money from some shareholders and issue loans to others. Membership fees and the difference at the expense of interest between the issued and attracted funds go to cover the costs of the credit union.
If, at the end of the year, expenses exceed income, the participants of the union must pay extra membership fees to cover losses. If the union is in the black, then the profit is usually sent to the reserve fund in case of future losses.