Small business loans Michigan

Every lender will have different requirements for applying for a loan, but you can use these steps as a guide to prepare for your application process.

1. Identify potential lenders: If you have an existing business relationship with a bank or credit union, it’s a good idea to check with them about their lending options, including SBA loans. Online lenders and national financial institutions are easy to look up online. Swoop can help you narrow down your search to lenders that meet your needs. 
2. Double-check your needs and qualifications: Take a hard look at your business financials so you can gauge how much money you really need and how you’ll use it. Look into the rates and terms offered by each lender to see if you can afford what they’re offering and if you qualify for it. It’s a good idea to check your credit score, as this is the number one way lenders determine your creditworthiness, or ability to pay back a loan. You can also use a loan calculator to help you determine what your monthly payments will look like once you take out a loan. Also, figure out what kind of collateral or downpayment you may be able to provide to secure a loan. 
3. Gather the necessary documentation: Your lender will probably ask for three years of business and personal tax returns, bank statements, financial statements like the profit and loss statement and your business plan outlining how you’ll use the funds and how your business will make enough money to pay back the loan. Having these items ready before you apply can speed up the process. 
4. Choose a lender and start the application: Once you’ve determined the loan program and lender you want, contact them to get the application process started. Some lenders will have online applications available while others may require you to apply in-person. Many financial institutions will assign you a loan officer to guide you through the process.
5. Review the application: Make sure that you’ve filled the application out fully and attached all the necessary documentation. It’s a good idea to have a business consultant or accountant review your application before you submit it. 
6. Submit the application: Send in the paperwork through the lender’s approved channels and be ready to respond to any requests for more information. Underwriting and review are often the longest parts of an application process, and you can speed up the process by being ready and responsive.
7. Review any loan offers thoroughly: Because the loan offer will change depending on your qualifications, you should read every loan offer thoroughly and make sure you understand the terms and conditions. Again, a business consultant or accountant may be able to help you better understand what you’re signing up for.
8. Follow the terms of the loan agreement: Once you’ve signed the agreement and the funds are in your account, make sure you follow the rules set forth by the loan agreement. This includes spending the money in whatever way you said you would and paying back the loan in the appropriate timeframe. 

What credit score do I need?

Every lender will have different qualifications for business loans, including credit scores. If your credit score is 700 or higher, you can generally expect to qualify for traditional bank loans and you’re more likely to get a lower interest rate and longer repayment terms on any loan you qualify for. 

Because SBA loans are meant for businesses that have difficulty getting traditional bank loans, they may accept a lower credit score. However, because SBA loan programs are so competitive, a credit score of 660 or higher is considered more favorable. 

Alternative lenders, online platforms and microloan providers may be even more flexible, sometimes considering credit scores as low as 550. However, they usually offer higher interest rates – sometimes as high as 99%! – to make up for the risk of lending to those with lower credit scores. 

Keep in mind that lenders will also use your financial information and business plan to decide whether or not to lend to you. You can also use alternative funding sources and improve your credit score over time before applying for a loan in order to get the most favorable rates. 

What are the typical interest rates on a business loan in Michigan?

Interest rates on business loans in Michigan can vary based on several factors, including the lender, the type of loan, your creditworthiness and overall economic conditions. On average, small business loan interest rates can vary from 4% to 30%, which is quite a spread.

For traditional bank loans, interest rates are usually lower, especially if the applying business has a strong credit history and financial stability. Currently, traditional business loans have an average interest rate of 5.75% to 12%. Online lenders and alternative financing options will generally offer higher interest rates, averaging 7% to 60%. SBA loan rates are tied to the Federal Prime rate, and are currently between 11.5% and 16.65%, depending on the loan program and the amount borrowed. 

How long does it take to get funds?

The time it takes for loan funds to land in your bank account varies depending on the type of the loan, the lender’s review and underwriting processes and how complete your application is. In general, you can expect different loans to have different processing times.

1. Traditional bank loans tend to have a longer approval process – often several weeks or even months. Banks and credit unions often require extensive documentation and may conduct a thorough review of the borrower’s business financial history and plans.
2. SBA loans have a very thorough review process because the funds are backed by the federal government if you don’t pay them back. The approval process will take at least six weeks but may take six months or more, especially for larger sums of money. 
3. Online or alternative lenders tend to offer the fastest time to funding – sometimes within a couple of days. They also usually offer a streamlined, online application process and may rely on more digital data for their decision-making.

Understanding loan application and processing times can help you decide which program to apply for. If you need funding immediately, traditional or SBA loans probably won’t be the best option for you. It’s important to be proactive in preparing documentation and information to speed up the application process. Some lenders may offer expedited options for a quicker turnaround, but this could come with fees. 

What alternative business financing options are there?

While loans are popular and reliable, they’re not the only way that businesses in Michigan can find financing. If you don’t qualify for a loan, can’t wait for longer loan processing times or aren’t ready to commit to a higher monthly payment, you may consider these alternative types of business financing:

• Venture capital: Best for high-growth startups, investors provide capital in exchange for business equity, or ownership in the business. 
• Angel investors: Individuals invest their personal funds in the business in exchange for equity, again best suited for high-growth startups or mission-based organizations.
• Crowdfunding: Large numbers of individuals pay small amounts of money to fund a business or project, usually through an online platform and in exchange for advanced or specialized services or products.
• Peer-to-peer (P2P) lending: Online platforms connect borrowers directly with individual lenders who will have their own rates and terms.
• Business lines of credit: Similar to a credit card, a financial institution gives a business access to funds up to a pre-set limit, which they can use to pay for business expenses, paying interest only on the amount of money they use. They may also be able to access the funds again once they’ve paid them off. 
• Invoice financing: A third party buys unpaid invoices from the business at a discount, helping improve cash flow. 
• Merchant cash advances (MCAs): A financial institution provides a lump sum of money in exchange for a percentage of future daily credit card sales.
• Revenue-based financing: The business repays the financing as a percentage of its monthly revenue. 

Each financing option comes with its own advantages and considerations, so it’s important to take a careful look at interest rates, terms and repayment structures before making a decision.