Starting a Credit Union From Scratch: What Would it Look Like?

Perhaps you’re thinking about entering the lending industry by establishing a small credit union. Maybe you see a need to diversify the current credit union pool or to create a credit union that offers more services than existing lenders in the area.

As a start-up credit union, several things must be taken into consideration before going all in. Still, the good news is, there are resources available to help you navigate the process. If you are considering opening a new credit union, here’s a short guide on starting a credit union from scratch: what would it look like.

Credit Unions vs. Banks

Before you dive in, it’s helpful to ensure that you understand what a credit union does and how it differs from more traditional banks and lenders.

The main distinction between a credit union and a bank is that a credit union is a non-profit financial institution. In contrast, a bank is for-profit, meaning they are publicly traded or privately owned. A credit union is member-owned and therefore tends to place greater emphasis on customer service.

Starting a credit union from scratch can be a great way to help support your community. Because they are usually set up as a cooperative, they tend to extend fields of membership to those who share a common bond, such as community, faith, or employment industry.

Additionally, credit unions typically offer members better rates and terms on loans and charge less and lower fees than banks.

The Process

The National Credit Union Administration, or NCUA, is the licensing authority over federal credit unions that permits them to operate. The NCUA also provides federal charter resources to help potential credit union start-ups understand how to navigate the process.

Start-up Planning

The NCUA Office of Small Credit Union Initiatives can help you with the start-up planning. In working with them, you will be asked a series of questions that can help you think critically about establishing a new credit union and the associated start-up costs. For instance, you may be asked:

  • Whether the location you are seeking to start a credit union needs another lender
  • If you have organized a capable management team to run the credit union
  • Whether you can secure the funding needed to cover pre- and post-chartering costs

To help you determine the need for your new credit union, and establish a customer base, consider forming a committee with members who have a financial background or experience. Next, you can survey potential members to establish substantial interest in your proposed credit union and what services they are most interested in.

Credit Union From Scratch

Securing a Federal Charter

After you have worked through the planning stages to establish a new credit union’s need and determine that you can successfully start-up and manage this new financial institution, you are ready to seek a federal charter from the NCUA.

The first step in securing a federal charter is to decide whether you want to be a basic service or full-service credit union. The majority of new credit unions opt to be chartered as a basic credit union due to smaller start-up costs.

This type of service provides each member with a saving and checking account and small loans. On the other hand, full service tends to require more experienced management and a more robust business plan but can allow you to provide more complex services.

Once you’ve decided which charter you wish to pursue, you can work with the NCUA’s National Small Credit Union Program for technical assistance and training and be connected to a local examiner.

Next, you’ll need to hire a management team and staff to get your credit union up and running. After determining the start-up costs, including expenses for staff, office space, and equipment, these must be included in your business plan and submitted to the NCUA.

Finally, the NCUA will review and evaluate your business plan to determine whether you will be granted a charter.

The Takeaway

If you are interested in starting a credit union from scratch, there are resources and assistance available. To get a sense of what it would be like, you should familiarize yourself with the federal charter process and think through start-up costs and the team needed to get your credit union up and running.

Credit unions like T&I Credit Union are exemplary financial institutions that work to serve their community members. If you are interested in taking advantage of low-interest rates, special offers and deals, and more, call (248) 397-9571 today.

About Tammy Newcomb

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