The motto of the city of Detroit is: “speramus meliora; resurget cineribus.” We hope for better things; it will rise from the ashes. Fitting, isn’t it? Time and time again, Detroit – and southeastern Michigan in general – has seen hard times, only to pick itself back up with conviction. Nowhere is this indomitable spirit more evident than in the vibrant startup community in Michigan.
Young and seasoned entrepreneurs alike are flocking to Michigan to pursue their dreams of owning and operating their own businesses, often attracted by the many resources and opportunities the state has to offer. In fiscal year 2013 alone, the Michigan District of the U.S. Small Business Administration supported over $770 million in small business lending. On top of that, the Michigan Economic Development Corporation administers more than 70 programs to advise, fund, network and house innovative companies, committing more than $100 million to the state’s entrepreneurial ecosystem in the past three years. Job growth is on the rise, with the Bay Area Council Economic Institute ranking Michigan number three in the nation for high-tech job growth. More and more entrepreneurs are choosing Michigan, and it’s not hard to see why.
Business owners need to be smart about getting the resources they need to make their dream a reality, and in many cases, this starts with acquiring a small business loan. With small business on the rise, it’s important to look at the first question a budding entrepreneur might ask: What do you need to approach a financial institution for a loan? Here we’ve provided the five essential things to keep in mind when applying for a small business loan:
- Create a business plan demonstrating a sound, profitable reason for you to have the money. Be specific, and present as much information in a clear, concise manner as possible. Bill Beardsley, president of the Michigan Business Connection, says the most important thing is showing that you know the industry and what it takes to be successful – and that sometimes, opening the door to a new business is not as difficult as keeping the door open. “Sometimes success consumes more cash than slow survival and demonstrating the ability to fund the expenses and assets required by growth is very important,” Beardsley says.
- Research and choose your lending institution carefully. Ask yourself if you just want a loan or if you’re looking for a long-lasting relationship. “Most credit unions and community lenders are focused on lending to businesses that are going to develop account relationships beyond the loan,” Beardsley says. Larger banks may be good at cross-selling other products, but you tend to miss out on personal service and a community connection. Also, make sure your institution of choice has a full suite of business products – some credit unions or local community banks may lack particular business services.
- Gather all required information for the specific institution’s loan application. This may sound obvious, but arming yourself with all information before you begin the loan application process can spare headaches and last-minute scrambles. Don’t be afraid to call the institution and ask for a list of required documents.
- Demonstrate your ability to pay the loan back. Your personal track record (credit history, financial preparation, etc.) is probably the number one aspect that lenders look at when determining your ability to pay them back. Beardsley advises, “Show the lender you are committed to success both by making your own financial investment and by having a solid financial footing before you start your venture.” If you’ve had a history of money issues, you might not be ready to jump into business ownership.
- Describe the loan repayment plan, including timelines and income sources. Show the lender that you’ve thought ahead about making payments and where you’ll get the money. Come up with a few options in case you fall short while getting started. If the lender feels confident that you won’t fall behind, you’re more likely to be approved for a small business loan.
An important thing to remember: having a brilliant idea and the motivation to succeed is not enough to get your business off the ground. You can’t make money without first investing money. Armed with a solid business plan and financing, you’re ready to make your mark in the burgeoning Michigan startup scene.
Janelle O’Hara is the primary blogger for MySoCalledMoney.com, a blog for 25- to 35-year-olds facing life’s big decisions. She’s the Social Media Specialist at Michigan First Credit Union in Lathrup Village. In her spare time, she likes to nerd out over sci-fi and fantasy, pretend she’s an exercise person and cheer on the Tigers and Red Wings.
Bill Beardsley is president of Michigan Business Connection, a company owned by Michigan credit unions which helps credit unions originate and manage their business loan programs. Bill has more than 25 years of business lending experience in Michigan, with significant expertise in new business financing and capital raising.