There are many reasons why small businesses thrive in Michigan, including a skilled workforce in cities such as Detroit, Lansing, and Grand Rapids, as well as in rural areas; a strategic location that provides access to US and international markets; and a relatively low cost of living. Whether you’re an entrepreneur looking to start a business or a small business owner looking to expand, a small business loan can help your Michigan-based business grow.
How Do Michigan Small Business Loans Work?
Most lenders who assess small business loan applications will assess the business to determine its ability and willingness to repay the financing. To do this, they will typically look at:
- Time spent in business. How long has the company been operational or is it a start-up? Many lenders prefer to work with companies with at least 1-2 years of established history.
- Revenues. Many lenders will use business bank account statements to assess business sales. They may also use this information to help analyze the company’s cash flow. Traditional lenders such as banks or credit unions may also require business tax returns.
- Credit history. Most lenders will look at the owner’s personal credit scores, although this may be a soft credit check that does not affect credit scores. Some lenders will also look at business credit scores or business credit reports. (Learn how to establish trade credit.)
Highly qualified companies are likely to qualify for the lowest rates and terms. There are often options for companies that only excel on a few of these criteria, but they can be more expensive.
Michigan Small Business Loan Options
If your business is located in the state of Michigan and you are looking for a small business loan, you have several choices. These include:
A fixed loan amount borrowed for a fixed term with a predictable repayment schedule.
Lines of credit
A flexible loan that lets you borrow an amount you choose up to your credit limit as needed. Pay it back and you can borrow again. Often used for short-term needs, including working capital.
These include loans guaranteed by the US Small Business Administration and made by approved lenders such as banks. There are a variety of SBA loan programs, including 7(a), 504 loans, and export loans. (Disaster loans and Covid-19 relief loans are issued directly by the SBA.)
Small business credit cards give you access to a line of credit when you need it. If you get a low interest rate card, you can minimize interest charges when you borrow.
Businesses that invoice other businesses (B2B) may be able to improve their cash flow through factoring or invoice financing. This allows the company to get paid faster on unpaid invoices.
If your Michigan business uses equipment, whether it’s manufacturing equipment or even computers, you may be able to use equipment financing or leasing to preserve cash flow and get the equipment your business needs.
What are the typical terms of a business loan in Michigan?
Requirements vary widely depending on the type of funding and qualifications. Businesses with strong personal and/or business credit and strong incomes will likely qualify for interest rates in the lower single or double digits. Business owners with poor credit or fluctuating income will likely pay higher rates.
Repayment terms will also vary. Typically, online lenders offer short-term loans (6 months to 5 years) while bank and credit union loans (including SBA loans) can have longer repayment terms of 5 to 25 years. years.
Who is eligible for a business loan in Michigan?
From an industry perspective, there are small business loans available for a wide variety of businesses ranging from real estate to restaurants, agriculture to financial services, or manufacturing to medical device technology.
Existing businesses with at least 1-2 years in business are better positioned to qualify for funding, although there are seed funding options for business owners with experience in their industry and a good credit.
Again, keep in mind that most businesses will need to demonstrate strong earnings and/or good credit to qualify. Eligibility criteria, however, vary by lender.
How to Apply for a Business Loan in Michigan
You can apply for small business loans from online lenders or traditional financial institutions such as banks. You can also work with a business loan broker or an online marketplace. The latter will help you match with lenders based on your qualifications.
When preparing for financing, it is a good idea to:
- Check your personal and business credit
- Gather your most recent semi-annual business bank statements
- Ensure that two years of business tax returns are available upon request
- Have your company statutes and business license handy
Some lenders may ask for additional information (a business plan, for example), but these are the main items that most commercial lenders will ask for.
Michigan Small Business Relief Program Loans
Businesses affected by the coronavirus pandemic may still be on the lookout for Covid-19 relief loans. The main programs include:
Economic Disaster Loans (EIDL): Low-interest loans available for qualified businesses and nonprofits impacted by the pandemic. Apply through the SBA.
Paycheck Protection Program (PPP) Loans: Forgivable loans based on payroll (or income for the self-employed). This loan program is currently closed to new applications.
Restaurant Revitalization Fund: This program provides restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding as long as the funds are used for eligible purposes by March 11, 2023. SBA.gov.
There are other programs that can help businesses recover from the pandemic crisis, such as grants, unemployment benefits for the self-employed, and local funding. The organizations below can help businesses locate these resources.
Michigan Small Business Resources
In addition to small business loans, there are a variety of programs that can help Michigan small businesses grow:
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