Your Local Funding Guide to Michigan Small Business Loans
During the 2008 economic crisis, the state of Michigan was one of the hardest hit in the country, owing mostly to the state’s automotive and manufacturing sectors. However, Michigan has now bounced back with steady job growth. If you’re starting or expanding a business in Michigan, a great way to secure capital is with small business loans. For small businesses that aren’t self-funded or venture capital-backed, getting a small business loan is the most viable route to capital.
Several organizations extend Michigan small business loans, including nonprofits, regional banks, and credit unions.
These are the top options for small business loans in Michigan:
- Small Business P2 Loans
- Detroit Community Loan Fund
- Opportunity Resource Fund
- Invest Detroit
- Chemical Bank
- Michigan First Credit Union
Read on to learn more about these small business loan programs, along with grant opportunities and online business loan options for Michigan business owners.
Small Business Loans in Michigan: The Top 6 Options
Whether you’re starting a new business in Michigan or expanding an existing business, you’ll have a variety of financing options, each with their own pros and cons. At the local level, it’s primarily nonprofit institutions, banks, and credit unions that extend small business loans.
Here are the top six options for small business loans in Michigan:
1. Small Business P2 Loans
The Small Business P2 Loan Program—the “P2” stands for Pollution Prevention—is run by the Michigan Department of Environment, Great Lakes, and Energy (EGLE). This program provides funding opportunities for small businesses that are making efforts toward sustainability, waste reduction, and energy conservation.
The following criteria must be met to be eligible for small business P2 loans:
- The business is independently owned and operated (i.e. not a franchise)
- The business is a for-profit company that’s not dominant in its industry
- The business must have 500 or fewer full-time employees
- The business must be involved in projects related to sustainability, waste reduction, or energy conservation (see possible projects that can qualify for funding)
If you meet these minimum requirements, you can request up to $400,000 in funding at an interest rate of 5% or less. These Michigan business loans are available through a public-private partnership between EGLE and private lenders. The private lender extends half of the financing, and the state extends the other half. To get started, contact EGLE staff to ensure your project meets eligibility guidelines.
2. Detroit Community Loan Fund
The Detroit Community Loan Fund (DCLF) provides financing for Michigan small business owners who historically have lacked access to capital. As a certified Community Development Financial Institution (CDFI), DCLF’s mission is to provide Detroit small business loans to entrepreneurs from underserved backgrounds, particularly women and minorities.
The loans range from $5,000 to $50,000. You must pay a $100 application fee, but loan costs after that are very reasonable. Interest rates are at a flat 7%. There are no origination fees or closing fees. You can also take advantage of an interest-only payment period, at the end of which you pay back the principal.
Loans can be used for a variety of purposes, such as working capital, the purchase of materials and supplies, fixtures, equipment, business expansion, and property improvements. However, you can’t use the funds to purchase real estate. Get started by contacting DCLF, who will refer you to a nonprofit business service organization. The nonprofit will help you put your application together, and will provide training and technical assistance for small business owners who qualify.
3. Opportunity Resource Fund
Opportunity Resource Fund is a nonprofit CDFI that provides small business loans to Michigan entrepreneurs. They provide both startup capital and working capital loans to existing businesses.
In order to be eligible for an Opportunity Resource Fund loan, you’ll need to meet the following requirements:
- Social Criteria – Work toward a social goal, such as providing employment for low-income individuals or investing in decaying areas.
- Security – Loans must be secured by real estate, equipment, inventory, or other assets. In some cases, a personal guarantee might be sufficient.
- Equity Injection – Loans below $150,000 require a 10% down payment from the borrower. Loans in excess of $150,000 require a 15% down payment.
- Business Plan – All applications require submission of a complete business plan.
The loans from Opportunity Resource Fund range from $10,000 to $250,000 and have an average term of five years. You can download an application from the Opportunity Resource Fund website to get started, and will need to include a $50 application fee.
4. Invest Detroit
Invest Detroit is a partnership of several local organizations and philanthropic entities that are trying to catalyze economic growth in Detroit. They aim to help businesses that are struggling to qualify for traditional financing. Invest Detroit doesn’t provide too many details on their website, other than saying that they provide Detroit small business loans between $50,000 and $2.5 million. In addition to lending, they also provide assistance with business plan writing, mentorship services, and technical training. Invest Detroit also has a venture capital arm for entrepreneurs who are looking for equity financing.
5. Chemical Bank
Another good option for getting small business loans, particularly SBA loans in Michigan, is Chemical Bank. This bank is a top provider of SBA loans, which are loans that are guaranteed by the U.S. Small Business Administration (SBA). SBA loans are a top choice for entrepreneurs because they offer large lending amounts, low interest rates, and long repayment terms. With the security of a government guarantee, banks are more likely to extend SBA loans to small business owners who might not otherwise qualify for financing.
In 2018, Chemical Bank extended 110 SBA loans, totaling more than $57 million in funding. In addition to SBA loans, Chemical Bank also extends other types of business loans, including equipment loans, lines of credit, and commercial real estate loans. Just keep in mind that in order to qualify for bank loans, you need to have strong credit and an established history of business revenues. This makes Chemical Bank a better choice for established businesses and less so for new companies. Contact a Chemical Bank branch near you to get started.
6. Michigan First Credit Union
Credit unions can be a good place to get small business loans in Michigan. They are membership-based and tend to be more community-oriented than banks. Credit unions are nonprofits or cooperatives, so they tend to charge lower interest rates and fees on loans. Credit unions are also more likely than banks to overlook low credit scores, low business revenues, and other negatives in your loan application.
Michigan First Credit Union is open to anyone who lives or works in the state of Michigan. At Michigan First Credit Union, you can apply for SBA loans, U.S. Department of Agriculture-backed (USDA) business loans, and conventional term loans. To apply for a loan, you can call a branch to request an application, or visit a Michigan First branch near you.
Best Small Business Grants for Michigan Businesses
As an alternative to small business loans, consider applying for small business grants for your Michigan business. In contrast to loans, which must be paid back with interest, grants are equivalent to free money for your company.
These are some of the top small business grants to target in Michigan:
Michigan Business Development Program
The Michigan Business Development Program provides grants for businesses that create at least 25 new jobs in Michigan. You can visit michiganbusiness.org to request an application.
Michigan Corporate Relations Network Small Company Innovation Program (SCIP)
Michigan’s SCIP provides matching funds of up to $40,000 to Michigan small businesses that need help to cover the cost of conducting a research project at a Michigan public university.
Accelerate Michigan Innovation Competition
Accelerate Michigan is an Invest Detroit program that lets entrepreneurs showcase their business ideas in front of investors. Applicants compete for a collective $1 million in prizes. The competition is in its 10th year and a good opportunity for tech startups and other high-growth companies.
Motor City Match
This program, run by the nonprofit Detroit Economic Growth Corporation (DEGC), awards $500,000 per quarter in small business grants. New businesses looking to lease commercial space in Detroit and established businesses that want to renovate their space or open an additional location in Detroit may qualify for funding through Motor City Match.
Motor City Restore
Also run by DEGC, Motor City Restore awards $500,000 in matching grants each quarter to help Detroit business owners improve their commercial storefronts. Qualifying businesses can draw up renovation plans with an architect or engineer, pay out of pocket for the renovation, and then receive a grant to offset some of the renovation costs. If you partner with other businesses on your block, you’re eligible for a larger grant.
Keep in mind that small business grants can be highly competitive. Don’t be discouraged if you aren’t selected, and ensure that you understand eligibility requirements before applying.
Best Online Business Loans for Michigan Businesses
In addition to local small business loans and grants, Michigan small business owners can apply for online small business loans. Online business lenders have simple and fast application processes. They are more expensive than banks but also far less selective, working with a wider range of small businesses.
These are some of the best online business loans for Michigan small businesses:
Fundbox is an online business lender who provides a business line of credit of up to $100,000. A business line of credit is a great tool for recurring expenses and to use as an emergency funding source. To apply, all you need to do is create a free Fundbox account, provide some basic business information, and sync up your accounting software or business bank account with Fundbox. They will automatically pull information about your business’s revenue history and decide whether to approve you for funding.
In order to qualify for Fundbox, you need at least three months in business, an average of $25,000 in annual revenue, and a personal credit score of 500. These requirements are relatively easy to meet, making Fundbox a good choice both for newer and more established businesses. Their funding timeline is very quick—you can get approved for financing in minutes and have the funds in your account the next business day.
OnDeck is another online business lender who works to quickly get funding into the hands of small business owners. Like Fundbox, OnDeck provides lines of credit, as well as short term business loans. Financing amounts with OnDeck go up to $500,000, so this is a good choice if you need to make a bigger investment in your business’s growth. That said, OnDeck isn’t an option for startups. You need at least one year in business, $100,000 in annual business revenue, and a credit score of 600 to qualify for OnDeck.
If you meet these requirements, the application process with OnDeck is quick and simple. You will typically know if you’re approved on the same day that you apply, and you can receive the funds in your account by the next business day.
Funding Circle provides loans of up to $500,000 and offers a nice combination of speed and affordability. They have a fully digitized application process, and typically take about one week to approve and fund your loan. Funding Circle is more selective than OnDeck and Fundbox, only working with businesses that have been operating for at least two years. The business owner must also have a minimum personal credit score of 620. Since Funding Circle is more selective, their interest rates are lower than OnDeck and Fundbox, closer to what you’d find with a nonprofit lender or a bank.
Preparing for Your Michigan Small Business Loan
There are several ways you can prepare your business to apply for financing. Following the steps below will ensure that you’re in the best position to qualify for an affordable loan product that will help you reach your business goals.
Here’s how to prepare for your Michigan small business loan:
- Improve Your Credit Score – Having a strong personal credit score is key to qualifying for business financing. Make sure you check your credit report regularly, and pay all existing loan and credit card payments on time to keep your score at its best.
- Register Your Business – Businesses that are incorporated or registered as a limited liability company (LLC) have an easier time qualifying for financing. For help, follow our instructions on starting an LLC in Michigan.
- Prepare a Business Plan – Having a well-composed business plan can be critical to qualifying for a business loan. Your business plan can be short and sweet, but should show that you have a solid grasp on your business concept and competitors.
- Strengthen Business Revenues – The more money you bring into your business, the easier it is to borrow money for your business. You can maximize business revenues in a variety of ways, such as cutting operational costs and adjusting pricing.
- Open a Business Bank Account – Once you start generating business revenues, make sure that money goes into a dedicated business bank account. This helps you separate business from personal finances. Here’s a list of the best banks in Michigan for small businesses to help you choose a banking institution.
Small Business Loans in Michigan: The Bottom Line
If you’re a small business owner in Michigan, you have several options to fund your business, so how do you decide what’s best for your company? You’ll be limited in your choices if you have a new business or a low credit score. Aside from that, the main factors to consider are how you plan to use the loan funds and what your current and expected business revenues are. The best loan option for you could come from a local funding source or an online option. The key is that the product should help to achieve your next big business goal.
Priyanka Prakash, JD
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.