Small Business Loans
Learn All About Small Business Loans in Minnesota
Minnesota is home to more than 560,000 small businesses, which make up approximately 99.5% of all enterprises in the state. From the medical technology hubs in the Twin Cities to the agricultural operations in the Red River Valley, these companies employ more than 45% of the state’s workforce.
Whether you’re launching a retail store in the Mall of America or expanding a manufacturing plant in St. Cloud, finding small business loans in Minnesota can be a key step in building your business. Here’s what you need to know about securing financing for your company.
- Key Points
- • The Emerging Entrepreneur Loan Program (ELP) provides low-interest funding to businesses owned by minorities, veterans, women, economically disadvantaged people, and people with disabilities.
- • The Automation Loan Participation Program helps manufacturers finance smart technology and machinery to increase productivity.
- • The Native American Business Loan Program offers low-interest financing specifically to businesses owned by enrolled members of Minnesota-based tribes.
- • Agricultural producers frequently utilize equipment financing to obtain the heavy machinery required for planting and harvesting seasons.
- • Seasonal tourism businesses in the Brainerd Lakes area often rely on lines of credit to manage cash flow during off-peak months.
Popular Types of Small Business Loans in Minnesota
Entrepreneurs in the North Star State can benefit from a strong financial ecosystem that supports a diverse mix of healthcare, agriculture, and manufacturing. The sections that follow outline the most common funding options available to business owners across Minnesota.
Minnesota Small Business Loan Programs
The state actively encourages economic growth through the Department of Employment and Economic Development (DEED). DEED manages the Emerging Entrepreneur Loan Program, which partners with nonprofit lenders to support underserved business owners.Other DEED programs include the Automation Loan Participation Program, which helps manufacturers finance smart technology and machinery, and the Native American Business Loan Program, which provides low-interest loans to businesses owned by enrolled members of Minnesota-based tribes.
Additionally, the State Small Business Credit Initiative (SSBCI) funds programs like the Growth Loan Fund, which provides capital to early-stage technology companies.
Term Loans
A term loan can provide a small business with an upfront lump sum of capital. The principal, along with interest (which is usually charged at a fixed rate), is then repaid over a defined period of time in regular payments. Having a fixed, predictable repayment structure can be useful as you budget into the future, and because the funds come in a lump sum, such loans can be well-suited to funding large, one-time investments. For example, a brewery in Duluth might use a term loan to expand its taproom and production capacity.
Business Lines of Credit
In contrast with a term loan, a business line of credit can give your business access to a revolving pool of funds that you can draw from when you need them, up to a limit set by the lender. Generally, you pay interest only on the money you actually withdraw, and as you repay the balance, you replenish the pool of funds and the money becomes available for withdrawal again.
Lines of credit can be helpful for businesses that have seasonal lulls or uneven cash flow. For instance, a resort owner in Bemidji could use a line of credit to cover maintenance and payroll costs during the slower shoulder seasons.
Equipment Financing
If your company needs a specific physical asset, like machinery, vehicles, or technology, you might be interested in applying for equipment financing. A sugar beet farmer outside Moorhead could use this kind of financing to buy a new harvester, while a medical device manufacturer in Rochester might use it to acquire precision prototyping tools.
Because the equipment itself serves as collateral for the lender, equipment financing loans can be easier to obtain than unsecured loans. Additionally, they may often 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 Minnesota business loans are available through numerous banks and credit unions.
Here 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 Minnesota
Applying for a Minnesota small business loan often requires preparation and attention to detail. You’ll need to give prospective lenders 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 Minnesota.
Define Your Loan Purpose and Amount
Before you begin contacting lenders, it may be beneficial to have a precise understanding of your business’s funding needs. You should be able to articulate exactly how much money you need and how it will generate a return. A specific proposal, such as “$50,000 to upgrade our inventory tracking software, which should improve our revenues by 5% annually” demonstrates to lenders that you’re thinking strategically.
Know Your Credit Score
When they’re reviewing your Minnesota business loan application, prospective lenders will generally pay special attention to your company’s credit profile. They’ll probably scrutinize your personal credit scores as well: Traditional banks often want to see 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’s smart to review your credit reports before you apply so that you can find any errors and have them fixed — and be sure you fully understand your financial situation before you submit your application for a Minnesota small business loan.
Gather Your Key Documents
Handing in an application package that’s organized and complete can speed up the review process and signal to a potential lender that you’re a motivated, reliable borrower. While requirements will vary among lenders, you’re likely to be asked for some or all of 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
When you’re considering Minnesota small business loans, shopping around can help you find the financing that best suits your company’s needs, since different banks may offer very different options on lines of credit, for instance. It may also be helpful 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 usually 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 Minnesota business loans.
Other Funding Options for Minnesota Small Businesses
If a traditional loan doesn’t seem to be a good fit for your company right now, there are other ways you may be able to fund your business. Minnesota’s entrepreneurial ecosystem offers several alternative paths to obtain capital. One of these options could align better with your specific stage of growth or industry.
Small business grants are highly sought after because you don’t have to repay them, and Minnesota has its fair share of them available to entrepreneurs. For instance, Launch Minnesota offers innovation grants to help technology startups scale. It could also be helpful to look into national databases like Grants.gov for federal programs relevant to your industry.
Crowdfunding can be another viable route, allowing your business to raise smaller amounts of capital online from a broad base of supporters.
Additional Business Resources in Minnesota
Success in business often takes more than just capital. Often it requires careful guidance and a supportive community. Fortunately, Minnesota has a network of resources designed to help small business owners navigate challenges. The Minnesota Small Business Development Center (SBDC) is a notable resource, offering advising services at nine regional centers statewide.
As for mentorship, local SCORE chapters connect entrepreneurs with experienced business leaders who volunteer their time. Additionally, the Southern Minnesota Initiative Foundation (SMIF) provides mentoring as well as specialized lending assistance to businesses in the southern region. Engaging with your local Chamber of Commerce can also provide valuable networking opportunities.
The Takeaway
Securing a Minnesota small business loan can be the deciding factor that allows your company to expand and thrive. While the process involves careful planning, it can be 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 business.
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.
(without impacting your credit score)†
FAQ
How do I get a small business loan in Minnesota?
To apply for a Minnesota business loan, start by defining your funding needs and checking your credit scores. Next, gather essential documents like your business plan, tax returns, and bank statements as you put together your application. Finally, compare options from various lenders to find the best terms available for your Minnesota 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 Minnesota?
The degree of difficulty depends on factors such as your business’s financial health, time in operation, and credit history. Traditional bank loans can have demanding requirements, but online lenders often offer more flexible ones, making them a more accessible option for many Minnesota businesses.
What is the easiest type of business loan to get approved for?
Loans secured by collateral, such as equipment financing loans, are generally easier to obtain because the asset reduces the lender’s risk. Short-term loans and invoice financing from online lenders also typically 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. However, some online lenders may be willing to approve applicants with scores in the low 600s. Bear in mind that higher scores can result in better approval odds and lower interest rates.
What can I use a Minnesota 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, the loan can’t be used for personal expenses.
Are there any small business grants available in Minnesota?
Yes, grants are available from a variety of sources. Launch Minnesota offers innovation grants, for instance. You can also search national databases like Grants.gov for federal programs relevant to your industry.
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