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 rural areas; a strategic location that provides access to both 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 small business loans in Michigan work?

Most lenders evaluating loan applications from small businesses will evaluate the business to determine its ability and willingness to repay financing. To do this, they will typically look at:

• Time in business. How long has the business been operational or is it a start-up? Many lenders prefer to work with businesses with at least 1-2 years worth of established history. 
• Revenues. Many lenders will use business bank account statements to evaluate the sales of the business. They may also use that information to help analyze the cash flow of the business. Traditional lenders such as banks or credit unions may require business tax returns as well.
• Credit history. Most lenders will look at the owner’s personal credit scores, though that may be a soft credit check that doesn’t impact credit scores. Some lenders will also look at business credit scores or business credit reports. (Learn how to establish business credit.)

Businesses with strong qualifications are likely to qualify for the lowest rates and terms, There are often options for businesses that only excel on a couple of these criteria but they may be more expensive. 

Options for small business loans in Michigan

If your business is located in the state of Michigan and you’re looking for a small business loan, you may have a variety of choices. These include:

Term loan

A fixed loan amount borrowed for a fixed amount of time with a predictable repayment schedule. 

Lines of credit

A flexible loan that allows you to borrow an amount you choose up to your credit line as you need funds. Pay it back and you can borrow again. Often used for short-term needs, including working capital. 

SBA loans

These include loans guaranteed by the U.S. 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 made directly by the SBA.) 

Credit cards

Small business credit cards let you access a line of credit when you need it. If you get a card with a low-interest rate, you can minimize interest costs when you borrow. 

Invoice financing

Businesses that invoice other businesses (B2B) may be able to improve cash flow with invoice factoring or financing. This allows the business to get paid faster on outstanding invoices. 

Equipment financing

If your Michigan businesses uses equipment— whether that’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 typical terms for a business loan in Michigan?

Terms will vary widely depending on the type of financing and qualifications. Businesses with strong personal and/or business credit, and solid revenues, will likely qualify for lower interest rates in the single or low double digits. Business owners with poor credit or fluctuations in revenues will likely pay higher rates. 

Repayment terms will vary as well. Typically, online lenders offer short-term loans (6 months to 5 years) while bank and credit union loans (including SBA loans) may have longer repayment terms of 5-25 years. 

Who is eligible for a business loan in Michigan?

Industry-wise, there are small business loans available for a wide variety of businesses ranging from real estate to restaurants, from farming to financial services or from manufacturing to medical device technology. 

Existing businesses with at least 1-2 years in business are in a better position to qualify for financing though there are startup financing options for business owners with experience in their industry and good credit. 

Again, keep in mind that most businesses will need to demonstrate strong revenues and/or good credit to qualify. Eligibility criteria vary by lender, however.

How to apply for a business loan in Michigan

You can apply for small business loans through 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 match you to lenders based on your qualifications. 

When you prepare for financing, it’s a good idea to:

• Check your personal and business credit
• Gather your most recent six months business bank statements
• Make sure two years of business tax returns are available if requested
• Have your business articles of incorporation and business license handy

Some lenders may request additional information (a business plan, for example) but those are the main items most business lenders will request. 

Small business relief program loans in Michigan

Businesses impacted by the coronavirus pandemic may still be looking for Covid-19 relief loans. The main programs include:

Economic Injury Disaster Loans (EIDL): Low-interest loans available to qualified businesses and nonprofits impacted by the pandemic. Apply through the SBA. 

Paycheck Protection Program (PPP) Loans: Forgivable loans based on payroll (or revenues for self-employed individuals). 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 funds are used for eligible purposes no later than March 11, 2023. Apply at SBA.gov.

There are other programs that may help businesses recovering from the pandemic crisis such as grants, unemployment benefits for the self-employed and local financing. The organizations below can help businesses locate these resources.

Resources for Michigan small businesses 

In addition to small business loans, there are a variety of programs that can help  Michigan’s small businesses grow: 

• Michigan Economic Development Corporation (MEDC) offers resources and research for those looking for opportunities in the State of Michigan. 
• Pure Michigan Business Connect (PMBC) is a free service that brings small to medium-sized Michigan businesses together with local, national and global companies for supply chain sourcing opportunities.
• Michigan Small Business Development Centers (SBDC) provide free counseling and educational programs such as webinars for all stages of small business, from getting started to advanced tech or exporting.