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Starting a credit union can seem like an overwhelming process, but it doesn’t have to be. There are simple steps to follow, and anyone can be ready to open a credit union in no time. If you are interested in opening a credit union, read on to learn more.

What Is a Credit Union?

A credit union is a not-for-profit financial institution that offers various banking services to its members. Unlike a regular bank where anyone can access financial services, credit unions are member-based. Membership is usually based on some type of common bond, including a workplace, a job industry, or where people live. Potential members must meet the common bond requirements to gain membership in the credit union.

Members become part owners of the credit union, meaning they have a vote in company operations. Additionally, since credit unions are not-for-profit organizations, any money they earn goes directly back to the members in the form of smaller fees, higher savings interest rates, and lower loan interest rates.

How to Start a Credit Union

If you want to open a credit union, there are a few things you need to do to get started. The steps below will help you get ready to start a community credit union.

Step One: Determine Need

The first thing you need to do is determine if there is a want or need for a credit union in your area. This need can be assisted if your area has some type of common bond, workplace, industry, services, or religious connections.  If you find that there is, you can move forward with the next steps.

Step Two: Form a Committee

A credit union operates under a board of directors with input from credit union members. You will need to gather committee members, preferably with financial backgrounds, to help you start the credit union. This should include any individuals that are part of the common bond that you have found.

Step Three: Establish Membership Guidelines

Your committee needs to decide the common bond that ties all of your members together. While past credit unions used companies or industries as their common bond, most credit unions today use location as their membership guideline.

Step Four: Decide Financial Services

Credit unions have the option of offering basic or full-service financial services. If you choose to open a basic credit union, you’ll offer simple services like checking and saving accounts, and smaller consumer loans. A basic credit union usually has lower start-up costs and, with simpler services, some of the management team may have lower financial experience.

A full-service credit can offer many of the same services as traditional banks, although banks will almost always have a wider variety of products and services. No matter if you choose to offer basic or full-service options, you will still need to apply for a credit union charter.

Step Five: Create a Business Plan

You need to create a business plan for your credit union. This plan includes what services you’ll be offering, projected business financials, a mission statement, and other important information regarding the future of your community credit union. Typically, you should have initial meetings with the National Association of Credit Unions or NCUA. This is the federal entity that will need to approve and provide your Credit Union with insurance. They can provide valuable guidance in your documentation.

Your plan will include identified members of your board of directors and management team. So be prepared to work with those individuals that you have chosen. They will also go through an approval process,

Step Six: Secure Startup Costs

Most people will not have the disposable funds to cover the startup costs of a credit union on their own. To start a credit union, it is recommended that you have at least $100,000 per $1 million in projected growth over the first five years. If you’re projecting that your credit union will earn $6 million in revenue after five years, you should have — at a minimum — $600,000 for startup costs.

To cover startup capital costs and raise capital for your Credit Union, you will need to obtain donations to get started. Credit Union capital and start-up costs are completely raised from these donations. You have a number of sources for these donations including the common bond entity, such as firefighters, churches, etc. You can also use your own money along with family and friends.

Step Seven: Apply for a Charter

Credit unions need a charter and license, to be allowed to operate. You’ll need to apply for your charter through either the National Credit Union Administration (NCUA) and possibly your state’s credit union regulator. After you determine the need, form a committee, establish membership guidelines, decide financial services, create a business plan, and secure startup costs, you are ready to apply for your credit union charter.

The application process will require you to spend time with the NCUA to answer all questions and provide the requirements for your new Credit Union.

Step Eight: Choose a Location and Open

After working with the NCUA to get your credit union charter approved, you can choose a physical or digital location for your new credit union. Finding a location that has enough space for all the services you are offering, is easily accessible to your members, and isn’t too close to another bank or financial institution. Once you choose your location, hire employees, and plan for your credit union opening.

Partner With Professionals

When you are ready to open your new credit union, you want to have core processing solutions that are specifically tailored to a credit union’s needs. At BMA, we offer a variety of products and services that aim to help your institution grow and prosper. From account solutions, tax reporting solutions, compliance solutions, and ACH payments our services deliver results.

Contact BMA to schedule a free introductory call, discovery meeting, and consultation about your new credit union.