Small Business Loans
Learn All About Small Business Loans in Michigan
More than 983,000 small businesses call Michigan home, and they account for 99.6% of all enterprises in the state. From the automotive supply chain in Detroit to the cherry orchards of Traverse City and tourism shops in the Upper Peninsula, these companies employ nearly 48% of the state’s workforce.
Whether you’re launching a mobility startup in Ann Arbor or expanding a manufacturing plant in Grand Rapids, finding small business loans in Michigan can be a key step toward growing your business. Here’s what you need to know about securing financing for your company.
- Key Points
- • The Michigan Economic Development Corporation (MEDC) manages the Capital Access Program, which uses a loan loss reserve to encourage lenders to fund riskier projects.
- • MEDC’s Collateral Support Program provides cash deposits to banks to cover collateral shortfalls for businesses that are otherwise creditworthy.
- • The Loan Participation Program allows the Michigan Strategic Fund (MSF) to purchase a portion of a commercial loan, reducing the lender’s exposure and improving terms for the borrower.
- • The Michigan Economic Opportunity Fund offers microbusiness loans of up to $50,000 to women, veterans, and minority entrepreneurs.
- • Agricultural producers in Michigan frequently rely on specialized lending to finance seasonal planting costs and purchase heavy machinery.
Popular Types of Small Business Loans in Michigan
Entrepreneurs in the Great Lakes State can benefit from a financial ecosystem that supports a mix of heavy industry, agriculture, and innovation. The following sections outline the most common funding options available to business owners across Michigan.
Michigan Small Business Loan Programs
The state actively fosters economic growth through the Michigan Economic Development Corporation (MEDC). The MEDC administers federal State Small Business Credit Initiative (SSBCI) funds to support several initiatives, including the Capital Access Program, which helps small businesses secure loans by creating a reserve fund with the lender, and the Loan Participation Program, which allows the Michigan Strategic Fund (MSF) to purchase a portion of a commercial loan, reducing the lender’s exposure and improving terms for the borrower. Additionally, the Collateral Support Program supplies pledged cash collateral accounts to lenders, bridging the gap for businesses that lack sufficient assets to secure a loan.
The Michigan Economic Opportunity Fund provides microbusiness loans of up to $50,000 to women, veterans, and minority entrepreneurs.
Term Loans
With a term loan, a lender provides a small business with a lump sum of capital. Then, over a specified period (the term), the borrower makes regular payments to repay the principal and interest, which is usually charged at a fixed rate. This structure can make a term loan an appealing option for financing large, one-time investments with predictable costs. For example, an auto parts manufacturer in Warren might use a term loan to retool a production line for electric vehicle components.
Business Lines of Credit
Unlike a term loan, a business line of credit can let you access a pool of funds that you can draw from whenever you need funding, up to a preset limit. Generally, you pay interest only on the money you actually withdraw, and as you repay the balance, you replenish the pool of funds so the money becomes available for you to withdraw again.
Lines of credit can be helpful for businesses that have seasonal lulls or uneven cash flow. For instance, a seasonal resort on Mackinac Island could use a line of credit to manage payroll and inventory during the off-season.
Equipment Financing
If your business requires a specific physical asset, like machinery, vehicles, or technology, you might consider applying for equipment financing. A construction firm in Lansing could use a loan like this to finance a new bulldozer, while a brewery in Kalamazoo might use one to acquire new fermentation tanks.
Because the equipment itself serves as collateral, equipment financing loans can be easier to obtain than unsecured loans. Additionally, they may come with more favorable terms.
Small Business Administration (SBA) Loans
Private lenders are the actual issuers of SBA loans, but this financing is partially guaranteed by the U.S. Small Business Administration. That federal backing reduces the lender’s risk, so the loan conditions may permit lower down payments and longer repayment terms. If you qualify, these Michigan business loans are available through numerous banks and credit unions.
Below are the types of SBA loans that may be the most useful for small businesses.
• The SBA 7(a) loan is very flexible: Amounts can range from $500 to $5 million. It’s suitable for covering working capital, refinancing debt, or purchasing supplies.
• The SBA 504 loan is specifically meant for companies to use on major fixed assets, such as commercial real estate or heavy equipment. The maximum amount is between $5 million and $5.5 million.
• The SBA Microloan is meant to help with short-term needs and can be useful to companies that need startup loans. You can borrow up to $50,000 and the maximum repayment term is seven years.
Using an SBA loan calculator may help you estimate what your loan costs might be for different kinds of SBA funding.
Recommended: Small Business Financing Guide
How to Apply for a Small Business Loan in Michigan
Applying for a Michigan small business loan takes preparation and attention to detail. You’ll need to provide prospective lenders with a clear picture of your company’s financial health and a well-developed plan for how their funds would be used.
Here’s a step-by-step breakdown of how to apply for a small business loan in Michigan.
Define Your Loan Purpose and Amount
Before you begin contacting lenders, it may be helpful to have a precise understanding of your company’s funding needs. Generally, you should be able to articulate exactly how much money is needed and how it will generate a return. A specific proposal, such as “$75,000 to automate our packaging facility, which we anticipate will raise revenues by 10%” demonstrates strategic thinking and financial planning.
Know Your Credit Score
When reviewing your Michigan business loan application, prospective lenders are likely to pay particular attention to your company’s credit profile. They’ll probably scrutinize your personal credit scores, too: Traditional banks often require a credit score for a business loan in the range of 680 or higher. Other lenders, like online banks, may be willing to look at slightly lower scores.
Because of your scores’ importance, it may be helpful to review your credit reports before you apply so that you can spot any errors and have them fixed — and be sure you fully understand your financial situation before you submit your application for a Michigan small business loan.
Gather Your Key Documents
Giving your prospective lender an application package that’s organized and complete can speed up the review process and indicate to the lender that you’re reliable and motivated. While requirements vary by lender, you should be ready to provide the following:
• Credit report
• Income statement
• Bank statements
• Budget
• Income tax returns (both business and personal)
• Business plan
• Collateral valuation and supporting documents (which may include titles, deeds, or invoices)
Compare Lenders and Loan Offers
If you’re looking at Michigan small business loans, shopping around can help you find the financing that best suits your needs. That’s because different banks may offer very different options on term loans, for instance. It may also be a good idea to compare options from multiple kinds of sources, including small local banks, large national institutions, and online lenders.
As you consider financing proposals, it can be helpful to use a business loan calculator to estimate the monthly payments for different options. It may also be a good idea to look closely at the Annual Percentage Rate (APR) of each loan to understand its true cost.
Submit Your Application and Await Approval
After you’ve filled out the loan application form and gathered your supporting documentation, you should be ready to submit the application package. Once that’s done, you’ll need to wait for the lender’s response. This can take as little as two days in some cases, but may require several weeks in others.
Tips for Improving Your Loan Approval Chances
Lenders typically want to see evidence of your business’s stability as well as its ability to repay the loan. Taking steps to strengthen your business’s financial profile before you apply might help you increase your chances of securing a loan. Here are a few strategies to think about trying:
• Ensure that you have a realistic business plan with detailed financial projections.
• Work to build your business and personal credit scores by paying down your current balances and making timely payments.
• If you have collateral available, consider offering it as security to potentially bolster your application’s chance for approval with certain Michigan business loans.
Other Funding Options for Michigan Small Businesses
If a traditional loan doesn’t seem to be the right fit for your business, there are other ways that you may be able to fund it. Michigan’s entrepreneurial ecosystem offers several alternative paths to obtain capital. One of these options may align better with your company’s specific stage of growth or industry.
Small business grants are highly sought after because they don’t require repayment, and there are a number that you may be able to access in Michigan. For instance, the Match on Main program provides reimbursement grants to support place-based small businesses starting up or expanding in select areas, while the Michigan State Trade Expansion Program (MI-STEP) grants help companies expand into international markets. Additionally, the Michigan Department of Agriculture and Rural Development (MDARD) provides specialized grants for the agricultural sector. You can also search national databases like Grants.gov to find federal programs that may be relevant to your industry.
Crowdfunding is another funding route you may want to investigate. It allows you to raise smaller amounts of capital online from a broad base of supporters.
Additional Business Resources in Michigan
Succeeding in business often requires more than just capital. It also takes experienced guidance and a supportive community. Fortunately, Michigan has a robust network of resources designed to help small business owners navigate challenges. The Michigan Small Business Development Center (MI-SBDC) can be a helpful resource, offering no-cost advising and market research at regional offices statewide.
As for mentorship, local SCORE chapters connect entrepreneurs with experienced business leaders who volunteer their time. Engaging with your local Chamber of Commerce can also provide valuable networking opportunities.
The Takeaway
Securing a Michigan small business loan can be the decisive factor that allows your company to expand and thrive. While the process may seem daunting, it’s an important step in your company’s development. By defining your goals and utilizing state resources, you should ultimately be able to find the right financing solution for your company.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
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FAQ
How do I get a small business loan in Michigan?
To apply for a Michigan business loan, start by defining your company’s funding needs and checking your credit scores. Next, gather essential documents like your business plan, tax returns, and bank statements to make it easy to fill out and submit your application. Finally, compare options from various lenders to find the best terms available to you for your Michigan small business loan.
Can I get a startup business loan with no money?
This can be challenging, since most lenders require an owner’s investment. However, some SBA microloans that are designed for startups have lower capital requirements. Another possibility is to look for business grants, which provide funding that doesn’t generally need to be repaid.
How hard is it to get a small business loan in Michigan?
The degree of difficulty depends on factors like your business’s financial health, time in operation, and credit history. Traditional bank loans can have strict requirements, but online lenders often offer more flexible ones, making them a more accessible option for many Michigan businesses.
What is the easiest type of business loan to get approved for?
Loans secured by collateral, such as equipment financing, are generally easier to obtain because the asset lowers the lender’s risk. Short-term loans and invoice financing from online lenders also may have less stringent requirements.
What credit score do I need for a small business loan?
Requirements vary, but for traditional bank and SBA loans, a personal credit score of 680 or higher is often preferred. Some online lenders may approve applicants with scores in the low 600s. Keep in mind that higher scores can result in better approval odds and lower interest rates.
What can I use a Michigan small business loan for?
You can use a small business loan for almost any legitimate business purpose. Common uses include purchasing inventory, buying equipment, funding marketing campaigns, or refinancing debt. However, you can’t use the loan for personal expenses.
Are there any small business grants available in Michigan?
Yes, grants are available from a variety of sources. For example, the Match on Main program gives reimbursement grants to support place-based small businesses starting up or expanding in select areas, and the Michigan State Trade Expansion Program (MI-STEP) grants help companies expand into international markets. It’s also worth searching national databases like Grants.gov for federal programs relevant to your industry.
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