The Different Michigan Business Loans You Can Apply For
Michigan has come a long way over the last few years and is doing very well economically, with an uptick in consumer spending. For small business owners in the state of Michigan, getting funding is vital to expanding and growing. If your business isn’t self-funded or you need more cash, then a small business loan is usually the best option to secure capital for your business needs.
In this article, we will uncover the different options for getting Michigan business loans, scams to look out for, and alternative financing options.
Your Options for Michigan Business Loans
There are four main ways to get standard commercial loans in Michigan. These include various SBA loans from the U.S. Small Business Administration and traditional loans from a bank or credit union.
1. SBA 504 Loan Program
The SBA 504 loan program is a type of SBA loan for small businesses. This type of loan is financed through a joint venture between the SBA and private-sector financial organizations.
The first part of the loan is often financed through a financial institution, while the second part (up to 40%) is through a Certified Development Company (CDC), which helps promote economic development in Michigan (and other states). The last part of the loan is financed by the borrower, usually around 10%. CDC's help promote economic development in states like Michigan.
Because SBA 504 loans are backed by the SBA, lenders take on less risk and are more likely to give money to small businesses that might not otherwise be able to get funding.
SBA 504 loans can be used to:
Finance commercial real estate projects
Purchase equipment and machinery
Improve land or facilities
Construct new buildings
To get an SBA 504 loan, your business must be a for-profit company in the U.S. with a net worth of less than $15 million. You also must have an average net income of less than $5 million after tax. In addition, you’ll need to have a business plan and show your ability to repay the loan.
You can apply for a 504 loan through a CDC in Michigan, such as the Oakland County Business Finance Corporation or the Michigan District. You can find the full list of CDCs through the SBA.
2. SBA 7(a) Loan Program
The SBA 7(a) loan program is one of the most popular SBA loan programs among entrepreneurs. With the SBA 7(a) loan program, borrowers can get up to $5 million, depending on eligibility. The program also offers a smaller loan offering of up to $350,000.
These types of loans require collateral unless the loan is under $25,000. In some cases, you may be asked to have a personal guarantee, especially if you don’t have other collateral to put up. This is when you or another person personally promises to accept responsibility if the loan is not paid back.
The repayment terms vary from 25 years for real estate to 10 years for other types of funding. You can use SBA 7(a) loans for:
Working capital
Inventory
Purchasing supplies and equipment
Real estate
Establishing a new business or acquiring an existing business
Refinancing debt
To be eligible for an SBA 7(a) loan, you need to operate for profit and own a small business in the U.S. You need to also demonstrate a need for the loans, be creditworthy, and not be behind on any other debt owed to the U.S. government.
3. SBA Microloans
With an SBA microloan, you can borrow up to $50,000 with interest rates between 8% and 13%. Microloans usually are smaller loans that are meant to be paid back more quickly. In most cases, they must be paid back in six years.
You can use microloans for:
Working capital
Inventory
Supplies
Furniture
Machinery
Equipment
However, microloans cannot be used to purchase real estate, to pay off existing debt, or for refinancing. Microloans are usually available through local nonprofits and SBA-approved lenders.
Each intermediary will have different eligibility requirements, so be sure to check the approved lenders in your area to find out if you can apply.
4. Traditional Bank or Credit Union Loans
Besides the SBA, you can also get Michigan business loans from traditional banks or credit unions. In general, you are more likely to get approved if you already have an account with the financial institution.
However, it can be harder to get approved for funding through a traditional bank or credit union. If you don’t have a good credit score, then your term loans may not be as favorable as they would be with an SBA loan or other types of financing, like through online lenders such as Backd.
Small Business Loan and Grant Programs in Michigan
Besides traditional banks and SBA loans, there are several Michigan business loan and grant programs targeted specifically at entrepreneurs. Some of the more well-known options aimed at businesses in the Michigan area include:
Detroit Development Fund: A Community Development Financial Institution (CDFI), the Detroit Development Fund provides capital for Michigan-based companies that can’t get funding elsewhere, especially for those located in underserved communities. They offer various types of loans, with loan amounts for the small business loans ranging from $50,000 to $150,000.
Small Business P2 Loans: This program is run by the Michigan Department of Environment, Great Lakes and Energy (EGLE) and provides up to $400,000 in business funding for companies working toward sustainability, waste reduction, and energy conservation.
Opportunity Resource Fund: This CDFI provides capital loans for small businesses in Michigan that are working toward a social goal. The loans need to be secured by an asset or other type of collateral, like real estate. Loans range from $10,000 to $250,000.
Michigan Business Development Program: The program provides grants for businesses that create new jobs or make new investments in Michigan. It’s run by the Michigan Economic Development Corporation (MEDC).
Motor City Match: Run by the nonprofit Detroit Economic Growth Corporation (DEGC), this nonprofit provides gap-funding grants of up to $100,000 as well as technical assistance awards for companies looking for business and architectural design services.
Beware of Small Business Loan Scams
The SBA and other local organizations provide a lot of funding options for Michigan businesses. However, you should be diligent before applying for a loan, as scammers may pretend to work for the SBA to steal information and money from small businesses.
If an SBA representative or other nonprofit organization asks for your bank details early on during the loan application process or asks you to submit a fee with your application, be wary.
If you’re unsure if the company is legit or not, you can call the SBA’s Office of Inspector General at 800-767-0385 or submit a complaint online or by mail. Remember, if it sounds too good to be true, it probably is.
Find Your Michigan Small Business Funding Solution
There are several loan options available to Michigan small businesses. Whether that means getting Michigan business loans from the SBA, an online bank, or other types of financial institutions, you can get the money you need to grow and support your company.
With Backd, you can get funding for your business of up to $2 million with our working capital advance or up to $750,000 with our business line of credit. With no collateral required and flexible repayment terms, Backd gives businesses in Michigan and elsewhere in the U.S. access to the funds they need to expand their company.
Apply today and find out in just 24 hours if you qualify for funding.
