The Great Recession saw the Michigan economy and its businesses decimated. Since then, the state and its winning people have fought hard and spawned a growing economy, stable employment, and a burgeoning real estate market. No economy has been immune to the effects of COVID-19, and Michigan is no different. The difference between now and 2009 is that prior to the pandemic, the Michigan economy had been on an upward trajectory with thousands of small businesses and real estate investors serving as the backbone of that growth. In the face of potentially serious economic headwinds, there are a variety of options Michigan small business owners and real estate investors have to access affordable business and real estate financing.
Government Relief Financing
The Paycheck Protection Program (also known as the PPP) is a program that was released by the Small Business Administration on April 3, 2020 to help supply funding to small businesses, nonprofits, sole proprietors, and business entities affected by COVID-19. $660 billion of total PPP financing was approved under The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Although the PPP expired on August 8, 2020, Congress is presently in negotiations regarding an additional stimulus package that would include the extension of the PPP. Lendio is still accepting PPP applications in anticipation of the PPP being extended, and interested business owners can apply here.
The PPP Flexibility Act that was recently signed into law, lengthens the time that PPP funds can be used to pay employees from 8 weeks to 24 weeks. Additionally, these new relaxed guidelines will allow up to 40% of PPP funds to be used for non-payroll related business expenses (i.e. mortgage, rent, utilities, etc.). A basic overview of PPP loan terms are listed below:
- Interest rate of 1%
- Maturity of 5 years
- First payment deferred for six months
- No collateral
- No personal guarantees
- No borrower or lender fees paid
- Loan forgiveness available
Private money lenders are stepping in to fill the void that is now absent conforming lenders. Private money lenders (aka bridge lenders and non-conforming lenders) utilize their own capital, or the funds of high-net-worth individuals or corporate investors, to make low leverage collateralized loans for an above average rate of return. A private lender will usually make a loan at a higher interest rate than a bank or a conforming lender, to compensate for increased credit risk.
LendingHome is America’s largest fix-and-flip lender and focuses on investment residential fix-and-flip, bridge, and rental property loans. LendingHome’s interest rates start at 4.95% and are available for a short term of 12 to 24 months, or a long term up to 30 years. The company offers financing up to 90% of your property value and will consider financing up to 100% of your renovation (rehab) budget. LendingHome has funded in excess of $5 billion spread out over 23,000 investment residential property projects. LendingHome is a nationwide lender currently providing loans up to $3 million in AZ, CA, CO, CT, DC, FL, GA, IL, KY, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OK, OR, PA, SC, TN, TX, VA, WA, WV.
South End Capital is a non-conforming lender and offers streamlined stated income, full and low documentation mortgages from $150,000 to $20 million for commercial and investment residential property (no personal residences). Low credit, back taxes, special-purpose property, and other financing barriers can be considered. Purchase, refinance, renovation, fix-and-flip, and cash-out loans are available nationwide with rates starting at 5.25%. South End also offers subprime SBA financing for borrowers who have been turned down by other SBA lenders. South End has provided over $300 million of loans to business owners with poor credit, limited collateral, low cash-flow, a past bankruptcy or foreclosure, a unique business, or other issues. Subprime SBA funds can be used for any business purpose such as to purchase, or construct real estate, buy equipment or a business, for working capital, to refinance debt, or consolidate merchant cash advances.
Business Loan Marketplaces
A business loan marketplace is not a physical location you can visit to pick out a business loan along with your weekly produce. It’s also not just a fancy or creative name for an online loan broker, although there are some similarities. A business loan marketplace is a company that operates an online platform encoded with algorithms and in some cases artificial intelligence, to match your loan needs with the correct lenders or investors. Additionally, a business loan marketplace is not a lender search engine that populates lender results for you to contact directly. The company that hosts the marketplace will often utilize its advanced technology along with a concierge-style service approach to help process, approve and fund your loan via the lender or investor/s it identifies for you [read more about business loan marketplaces here].
SmartBiz was an early implementer and trailblazer of the business loan marketplace model. SmartBiz was able to identify a significant inefficiency present in small SBA loans of $350,000 or less, and develop proprietary technology to allow banks to make more small SBA loans in a shorter time-frame. Prior to the creation of SmartBiz, most banks, even large ones, would shy away from small SBA loans because the operational cost of providing them exceeded the potential revenue. With its unique technology, SmartBiz was able to automate the small SBA loan process for banks and speed up the funding process to as short as 7 business days after an application is completed. SmartBiz has since expanded its marketplace and improved its software to introduce a bank term loan product from $30,000 to $500,000. Business term loans obtained through SmartBiz can fund in as little as 2 business days, interest rates are as low as 7.99% and can be fixed for up to 5 years.
Fundera is one of the largest online business loan marketplaces in America and has provided in excess of $2 billion to over 50,000 small businesses. Fundera is a market leading provider of SBA loans, equipment financing, bank term loans, business credit lines, merchant cash advances, invoice factoring, and other types of business financing. Fundera’s business loan application is simple and fast, applying does not affect your credit, and you’ll be matched with loan options from its extensive network of lenders. Fundera offers loans for any business need from $5,000 to $15 million, interest rates start at 4%, and funds can be received in as little as 1 day. Borrowers with credit scores as low as 500 and in operation for as few as 3 months may be eligible for a loan through Fundera.
Lendio is a technology driven, small business financing marketplace that utilizes a streamlined application process and proprietary algorithm to match borrowers with loan options from a nationwide network of esteemed lenders. Lendio has provided $8 billion in loan approvals to over 100,000 small businesses and offers a full suite of business loan products. Lendio focuses on providing PPP loans, SBA loans, commercial real estate loans, and alternative business financing to small businesses unable to access capital through a bank or other traditional avenues. Lendio offers loans for any business need from $1,000 to $5 million, interest rates start at 5%, and funds can be received in as little as 1 day. Borrowers with credit scores as low as 550 and in operation for as few as 12 months may be eligible for a loan through Lendio.
Hopefully, the Paycheck Protection Program will be extended allowing businesses in need to access the over $100 billion in affordable relief funding still remaining. In the meantime, securing a loan from a private lender or through a business loan marketplace could be the right move to help with the continuing operations of your business or your real estate investments. Business owners seeking more information about the Michigan economy and business can visit the Michigan Chamber of Commerce or mlive.com/business.
Don’t hesitate to contact us if you are unsure of which financing option is the right choice for you, or if you need additional lender recommendations beyond those mentioned in this article.