What is a credit union, and how do members of such a cooperative work together to provide loans?
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What is a credit union?A credit union is a non-profit cooperative of entrepreneurs who provide other entrepreneurs credit. The members of a credit union are business owners. The members determine the policy together, elect the board and jointly own the credit union.
Investing togetherA credit union obtains resources from members of the cooperative and / or professional market participants. It lends these funds to other members of the cooperative, without the involvement of a bank. This gives the members of the credit union and the involved professional participants the opportunity to invest in a specific industry or region together. They share the investment risk. Some members are also active as business angels or informal investors, where they themselves invest outside a credit union. A coach supports the credit union’s loan recipients. To increase the company's chances of success, the coach is one of the members of the credit union. In short, a credit union consists of members who finance and of members who are financed.
Target group and productCredit unions mainly focus on SMEs in the Netherlands that have difficulties obtaining financing in the regular system. Within this general target group, each credit union chooses its own specific target group, usually a specific business sector or region. Credit unions provide straight-line loans of €50,000 to €250,000 (or sometimes more), with a duration of 1 to 10 years. Credit unions use reclaimable funds, which they gather by issuing member certificates or bonds.
Two kinds of credit union
- The classic model, in which credit is always provided by all depositing members. The members all share the risks and possible returns.
- The mediation model, in which one or more members connect with one loan applicant as individual investors. The risk and return is shared only by depositors who participate in this investment.