How to get a loan in Credit Union?

omik

Hi,
I am a member of my local Credit Union for over 3 years now. I've opened the account in this bank only to put there my savings. Recently the opportunity arose to invest that money into my own business. I am self employed and have all my tax affairs paid and up to date.
In 2016 I had €15,000 savings on the account and I needed further €10,000 for the investment, so naturally I went to the CU for a loan. And here's where the problem started. After lengthy talks the bank finally offered me a deal: they will lend me €5,000 against €5,000 of my savings. So in essence my bank account balance would still be €15,000 but I would have to repay 10% extra. Where's a sense in this? I went away and so did my investment.

Now I have over €33,000 and I have another opportunity for a good investment - so decided to give them a go. I asked CU again for €10,000 - and it started again. After talks they offered €5,000 loan against €1,000 deposit but I need to provide papers from county council, solicitor, tax clearance certificate and clearly describe what do I need that "huge" amount for. I was told it would be appreciated if I had a guarant for the loan. And this person has to be my local CU member too!

Can somebody explain me what do I do wrong?

For over 3 years now they are using my money and I have nothing in return. Actually I am loosing on this because my money aren't working for me but for them!

Thanks

beechwood55

Are you saying that you have savings of €33,000 in the Credit Union and you want to take a loan of €10,000? Or are you looking for a loan of €43,000?

Spocker

Does that Credit Union support business lending (many don't) and did you tell them it was for investing in your business?

From reading your post, you intended to put all of your savings + any loan in this investment, is that the case. Credit Unions work be securing your shares against your loan i.e. you can't have the loan, and take out your shares at the same time.

As you're self employed, all financial institutions will ask for documentation such as accounts and tax clearance certificates as good practice.

I also noticed you've used the work bank several times - Credit Unions are not banks, they are a 'lending co-operative' where the money is lent to the members, by the members. Any profit from that is returned to the members.

You're not specifically doing anything wring here, but the policies of your local Credit Union do not seem to be favourable to business lending (and remember, all Credit Unions have different policies), and you might be better off seeking the funds elsewhere

omik

I only need €10,000 to fulfill investment of €40,000.

omik

I was dead honest with my CU - I gave them 3 years set of accounts and explained to them that all I need is €10,000 + my own €30,000 so that I can finish my purchase.

So in the end what the credit union does is they use my money to support 2 times more employees than any other bank in my town. And even though this CU supports "business lending" I am left with withdrawal of my savings and going to likes of AIB or BOI

Stheno

They wont loan you 10k and allow you withdraw all your savings

hdowney

But you won't be able to fulfill 40000. If you get a loan from the CU it is secured on your shares. So they will lend you X amount but you have to leave Y amount of shares in the CU until you have fully paid the loan. So once you get a loan from them you will NOT be able to remove all of your share money to use in the investment.

myshirt

Way, way too risk adverse. I'd escalate the complaint, they shouldn't be turning down good lending opportunities while still claiming the salaries they do. That is letting the wider membership down imho.

AndrewJRenko

hdowney wrote: »

But you won't be able to fulfill 40000. If you get a loan from the CU it is secured on your shares. So they will lend you X amount but you have to leave Y amount of shares in the CU until you have fully paid the loan. So once you get a loan from them you will NOT be able to remove all of your share money to use in the investment.

So you end up paying a high interest rate on the loan while earning a miserly low interest rate on your savings. You are actually worse off at the end of the day.

Why would anyone borrow from the CU in such circumstances? You're better off spending your savings, forgoing the tiny amount of interest earned, and then build the savings back up again.

What value does the CU add in these circumstances?

omik

I get the point that I can only take loan from them if I leave them the deposit.
What I don't get is how can they offer me a loan of 5k against the deposit of 5k. My balance before the loan would be say 15k. After them giving me the loan my balance is still 15k. I've earned nothing on this but I have to repay additionally 10%.
It is stupid.

Spocker

Is the Credit Union restricted by the Central Bank on their lending? This would explain the 5k loan against 5k in shares in your case. You seem to misunderstand how Credit Unions work, their aim is to generate returns for their members, rather than taking a risk of €40,000 on your investment

Spocker

myshirt wrote: »

Way, way too risk adverse. I'd escalate the complaint, they shouldn't be turning down good lending opportunities while still claiming the salaries they do. That is letting the wider membership down imho.

What utter nonsense - it's not a lending opportunity, the OP is trying to wirthdraw all his savings at the same time, so the exposure to the CU would be 40k - thats a lot of money for a CU.

If anything they are protecting their membership by refusing the loan, and allowing a 5k loan against 5k of shares. You also have no idea what salaries the staff are being paid

omik

Even though it isn't a real bank I have gave them my money and I was expecting something in return. Previously I was in BOI and took €10,000 loan and had no problem about it. I think I will transfer all my money back to BOI and apply to them.

To me they are guarding their own business not their customers. Every bank works on the principle of lending money. CU clearly does not.

Thanks

AndrewJRenko

Spocker wrote: »

What utter nonsense - it's not a lending opportunity, the OP is trying to wirthdraw all his savings at the same time, so the exposure to the CU would be 40k - thats a lot of money for a CU.

If anything they are protecting their membership by refusing the loan, and allowing a 5k loan against 5k of shares. You also have no idea what salaries the staff are being paid

The CU has no 'exposure' to the €30k. It's not their money. It is customer money on deposit. The only exposure is to the €10k loan.

Spocker

AndrewJRenko wrote: »

The CU has no 'exposure' to the €30k. It's not their money. It is customer money on deposit. The only exposure is to the €10k loan.

Ah, you're correct, just the 10k, assuming the loan was given. However, they also lose the 30k that the OP would be withdrawing

hdowney

omik wrote: »

Even though it isn't a real bank I have gave them my money and I was expecting something in return. Previously I was in BOI and took €10,000 loan and had no problem about it. I think I will transfer all my money back to BOI and apply to them.

To me they are guarding their own business not their customers. Every bank works on the principle of lending money. CU clearly does not.

Thanks

They don't work the way banks do because they are NOT a bank. I don't know why you keep expecting them to work the same way. You don't seem to understand the premise of a CU.

And on the point of them offering you 5k loan on 5k shares - I'm guessing that this is your first loan with them. They lend this way to first time borrowers in order to ascertain if the borrower is a reliable repayer. Once the first loan is repayed and the borrower shows they are good payer then CUs generally offer loans up to 3x the amount the applicant has in savings in the CU. it's very standard practice.

AndrewJRenko

hdowney wrote: »

And on the point of them offering you 5k loan on 5k shares - I'm guessing that this is your first loan with them. They lend this way to first time borrowers in order to ascertain if the borrower is a reliable repayer. Once the first loan is repayed and the borrower shows they are good payer then CUs generally offer loans up to 3x the amount the applicant has in savings in the CU. it's very standard practice.

I think you're a decade or two out of date. Different CUs have different rules, but the old 3x savings really doesn't apply. In my experience, they give personal / car loans based on ability to repay.

For business loans, I've not so sure how they work.

hdowney

AndrewJRenko wrote: »

I think you're a decade or two out of date. Different CUs have different rules, but the old 3x savings really doesn't apply. In my experience, they give personal / car loans based on ability to repay.

For business loans, I've not so sure how they work.

Quite possibly. I haven't availed of a CU loan in about that long. It wouldn't surprise me if the first part of my post still stands though. Although as mentioned there are no 'set' CU practices as such. All can and do have different criteria