While Michigan produces more cars and trucks than any other state - Detroit is known as Motor City after all - there’s much more to Michigan than vehicles. Michigan has a robust community of entrepreneurs who are helping to strengthen the economy.
According to data from the U.S. Small Business Administration, more than 9 in 10 businesses in Michigan are classified as small businesses. Those small businesses employ about half the state’s workforce, totaling some 1.8 million workers.
For more information on tax policies, the legal climate and other relevant issues affecting small business owners in Michigan, visit the NFIB website here: The 2019 Landscape for Michigan Small Business.
If you’re a business owner operating in Michigan, have you explored applying for outside funding? While taking on a loan might seem counter intuitive, the right loan can make a world of difference. Our blog post outlines all the ways a loan, one with low rates and long terms, can help strengthen your business: The Benefits of Long-Term Debt for Your Small Business
Here’s what you need to know about getting the low-cost funds you deserve to grow your business.
Financing Options for Established Michigan Businesses
If you need funds for inventory, working capital, hiring or more, there are lots of options. Some are fast, others take more time, some are costly and others offer low-cost funds.
So where do you turn for low cost funds? Here are options available in Michigan for small businesses.
If you qualify, the Small Business Administration’s low-cost loan programs can be your best option. SBA loans have low rates, long terms and very low payments to fuel stability, growth and savings.
There are three types of SBA loan programs available for business owners, the 7(a) Loan Program, the CDC/504 Loan Program and the Microloan Program
The 7(a) Loan Program
An SBA 7(a) loan can be used for a variety of purposes.
- Working Capital – Purchase equipment, increase inventory, add marketing programs, for operating expenses to hire additional staff.
- Debt Consolidation Loans – Refinance merchant cash advances, short-term business loans, high interest business loans, daily or weekly payment loans or business credit cards.
- Commercial Real Estate – Refinance an existing commercial real estate mortgage, buy an office building or other owner-occupied commercial space.
For in-depth information about the popular SBA 7(a) loan program, visit the SmartBiz Small Business blog and review our comprehensive article: What is an SBA Loan?
The 504 Loan Program
This program was created to give small businesses low cost funds for expansion or modernization. Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs (Community Development Corporations) usually fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner. A 504 SBA loan might be a good fit for small business owners interested in purchasing a commercial real estate property and if their unique business circumstances fit with the public policy goals of your local CDC. Find a CDC in Michigan here.
The Microloan Program
The Microloan Program is for very small businesses, including start-ups and provides loans of up to $50,000. Requirements to qualify for a microloan can vary depending on the lender. Proceeds from an SBA Microloan can be used for most business expenses but not for paying down debt or real estate purchases.
Non-SBA Loans in Michigan
There are plenty of non-SBA loan options available in Michigan although they may have higher rates, shorter terms and larger payments.
- Business Lines of Credit
A business line of credit allows you to borrow funds up to a limit based on your credit, typically smaller than a term loan. You only pay interest on the amount you use, and you can continue borrowing as necessary until you reach the set maximum. These loans are usually unsecured, meaning that you won’t have to provide collateral to qualify. For in-depth information, read this post from the SmartBiz Blog: Small Business Lines of Credit Pros and Cons
Business credit cards are revolving lines of credit. The main distinction is that they don’t terminate once the predetermined limit is reached. They work like personal credit cards, with varying spending rewards and offers depending on the lender. Learn more here: 5 Business Credit Card Myths.
- Merchant Cash Advances
A merchant cash advance (MCA) is most often used by small businesses that accept credit and debit card sales. You receive a specific sum in advance that is repaid either by a percent deduction from daily transactions or through daily or weekly payments.
Keep in mind that MCAs often lead to extremely high annual percentage rates. Even the minimum within the range can be several times larger than term loan annual percentage rates and can reach up to well over 300%. For more info, read What You Need to Know About an MCA
Bank Term Loans
If your business isn’t quite ready for an SBA loan, or need funds more quickly than an SBA loan, consider applying for a bank term loan. SmartBiz currently offers term loans through its bank partners for working capital, debt refinance and new equipment purchase:
- $30,000 to $200,000 loan amounts
- 2 – 5 year repayment terms
- Fixed interest rate*
- Monthly repayments
- No pre-payment penalties
*Interest rate depends on loan term and the applicant's credit and financial profile.
Advantages of SBA 7(a) Loans in Michigan
SBA 7(a) loans are known as the “gold standard” in small business funding and can help you meet your goals. An SBA 7(a) loan has several advantages compared to other options including:
- Low interest rates
- Long terms
- Very low monthly payments
- Available for many uses
- Can help build business credit
- No prepayment penalty
- Available nationwide
Read why SBA loans are so popular on the SmartBiz website here.
Requirements to apply for an SBA 7(a) loan in Michigan
Lenders and loan programs have unique eligibility requirements for an SBA loan. For example, some lenders may require a business plan while others do not. (SmartBiz Loans does not require a business plan). Requirements for an SBA loan facilitated by SmartBiz include:
- Time in business must be above 2 years
- Business owner’s personal credit score must be above 650
- The business must be U.S. based and owned by US citizen or Lawful Permanent Resident who is at least 21-years old
- No outstanding tax liens
- No bankruptcies or foreclosures in the past 3 years
- No recent charge-offs or settlements
- Current on government-related loans
How to apply for an SBA 7(a) loan in Michigan
Step 1: Check your eligibility. Before you even begin your application, make sure your business is eligible. Visit the SBA website for a list of eligible businesses. You must also meet the requirements listed above.
To determine if your business is SBA loan ready, sign up for SmartBiz Advisor, a free tool that helps you learn how banks typically evaluate your business and recommends ways to increase your likelihood of approval when applying low-cost funding.
Step 2: Review requirements and gather paperwork. The more organized you are, the swifter the application process will move. For a list of documents required for an SBA loan, visit the SmartBiz Blog. How to Get an SBA Loan: Documents You Need
Step 3: Choose a lender. Although SmartBiz Loans is not a lender, we work with multiple banks to match you with the lender most likely to fund. You won’t waste time going from bank to bank. This video has step-by-step information about how to get an SBA loan:
When you work with SmartBiz Loans, expert support is available. The SmartBiz team is on hand to help facilitate the process. Our loan consultants can answer any questions that might come up during the loan process. To read 5-star reviews about our customer service, visit Google Reviews, the Consumer Affairs website or the SmartBiz Loans TrustPilot page.
Discover if you’re prequalified for a low-cost SBA loan in minutes without impacting your credit score here.
Best of luck to you as you grow your business!
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.