Starting a Business in Michigan

A new business in Michigan is within your reach. So have you been wondering: just how do I start a business in Michigan? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in Michigan during a recession?

New Business in Michigan: Pros and Cons

Michigan is in the middle set of ten states to start a new business in for the entire country. This is according to Business Insider.  And productivity can be an issue because the per capita GDP is below the national average.

The state also has a somewhat low density of startup companies. But Michigan’s largest city Detroit has reemerged as a hot spot for new businesses.

Real estate is cheap, and there is good access to exporting and shipping. Another plus is a strong university system. There is also a low cost of living and a favorable business tax climate.

Recent Improvements

In 2019, Dollar Sprout put Michigan in the number two slot for starting a new business. Keep in mind, its methodology differs from Business Insider’s. Yet it’s obvious: a lot has changed for the better. Michigan has an excellent growth rate (almost as good as in Texas), and business formation fees are low. It helps to have a well-educated workforce as well. Plus costs of living are low, even in the biggest city, Detroit.

Start a New Business in Michigan – Michigan Top Industries

According to Michigan Business, the biggest industries in Michigan are automotive/mobility, aerospace, and advanced manufacturing. More Michigan top industries are cyber security, agribusiness, and defense. Still more top Michigan industries are information technology and carbon fiber/composite materials.

Smart business owners can find new opportunities and take advantage of bigger industries in the area. They can do so by offering goods or services such as data and other computer support. Other options are inventions and materials supply for the automotive industry. Still more new business ideas include materials testing, and trucking for any industry.

Here is exactly how to start a new business in Michigan.

Start a New Business in Michigan – Michigan New Business Secretary of State Requirements

Register a Business Name

It is not necessary for a business owner to reserve a name before filing Articles of Incorporation. But if they would like to reserve a particular name before filing, they can fill out an Application for a Reservation of Name.

It is a PDF which must be printed and mailed. It goes to the Michigan Department of Licensing and Regulatory Affairs; Corporations, Securities & Commercial Licensing Bureau; Corporations Division. The filing fee is $10.00 and the name will be reserved for a period of 90 days.

Corporations

A business owner who is looking to start a corporation must choose a name that is not in use by another corporation. The business owner should do a thorough search of online and other records. Search the Michigan Corporation Division database online. To read other guidelines on choosing a corporate name in Michigan, go to the official Michigan government website.

Business Permits and Licenses

There is an alphabetical list of Michigan Licenses and Permits. It is available through the Michigan government webpage.

Local Permits and Licenses

The Michigan Voter Information center keeps a list of all Michigan clerks by county.

Start a New Business in Michigan – Business Registration

Make sure to check with the Department of Licensing and Regulatory Affairs.

Registered Agents for Corporations

A registered corporation will also need to choose a registered agent. A registered agent acts as an agent for service of process. The registered agent a business owner indicates will receive all legal and tax documents on behalf of the corporation.

A business owner may choose an adult resident of Michigan or a corporation as the registered agent. However, the corporation cannot serve as its own registered agent.

Tax Registration

Registration forms are found through the Michigan Department of Treasury. And you can also access a simple online registrations system.

Start a New Business in Michigan – Virtual Offices

Alliance offers Michigan virtual business office space in Grand Rapids and Portage.

Go to Regus for Michigan virtual offices in Ann Arbor, Detroit, or Flint.

And try DaVinci for Michigan virtual office space in Bloomfield Hills, Clinton Township, Livonia, Novi, Southfield, St. Clair Shores, Sterling Heights, and Troy.

For other areas of the state, business owners might want to try local business owners. Or ask computer user groups for help in this area. Other options may be to look for virtual business office space in nearby states. These are Illinois, Indiana, Minnesota, Ohio, and Wisconsin.

Start a New Business in Michigan – Establish Business Credit

Small business credit is credit in a business’s name. It doesn’t tie to an entrepreneur’s individual credit, not even if the owner is a sole proprietor and the solitary employee of the small business.

As such, an entrepreneur’s business and individual credit scores can be very different.

The Advantages

Due to the fact that small business credit is distinct from individual, it helps to protect a small business owner’s personal assets, in case of a lawsuit or business insolvency.

Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles purchasing power.

Another advantage is that even startup businesses can do this. Heading to a bank for a business loan can be a recipe for frustration. But building company credit, when done the right way, is a plan for success.

Consumer credit scores depend upon payments but also other factors like credit utilization percentages.

But for business credit, the scores actually only hinge on whether a small business pays its bills timely.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

The Process

Establishing business credit is a process, and it does not occur automatically. A business has to proactively work to build small business credit.

That being said, it can be done easily and quickly, and it is much more efficient than developing consumer credit scores.

Vendors are a big part of this process.

Doing the steps out of sequence will result in repetitive denials. Nobody can start at the top with business credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Start a New Business in Michigan – Small Business Fundability

A business must be fundable to lenders and merchants.

For that reason, a small business will need a professional-looking website and email address. And it needs to have site hosting from a supplier such as GoDaddy.

And also, company phone and fax numbers should have a listing on ListYourself.net.

In addition, the company telephone number should be toll-free (800 exchange or the equivalent).

A company will also need a bank account dedicated only to it, and it needs to have every one of the licenses essential for running.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Dealing with the IRS

Visit the IRS website and obtain an EIN for the small business. They’re free of charge. Choose a business entity such as corporation, LLC, etc.

A business can start off as a sole proprietor. But they will more than likely want to change to a kind of corporation or an LLC. This is in order to minimize risk. And it will make best use of tax benefits.

A business entity will matter when it concerns tax obligations and liability in the event of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one else is responsible.

Sole Proprietors Take Note

If you run a small business as a sole proprietor, then at least be sure to file for a DBA. This is ‘doing business as’ status.

If you do not, then your personal name is the same as the small business name. Consequently, you can find yourself being directly accountable for all business debts.

Plus, according to the Internal Revenue Service, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Prevent confusion and noticeably decrease the odds of an IRS audit simultaneously.

Beginning the Business Credit Reporting Process

Start at the D&B web site and get a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a business in their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s websites for the small business. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.

This way, Experian and Equifax will have something to report on.

Vendor Credit Tier

First you must establish trade lines that report. This is also called the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can start to get credit in the retail and cash credit tiers.

These kinds of accounts tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are generally Net 30, rather than revolving.

Hence, if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, like within 30 days on a Net 30 account.

Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. In contrast to with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.

To kick off your business credit profile the proper way, you should get approval for vendor accounts that report to the business credit reporting agencies. Once that’s done, you can then make use of the credit.

Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Helps

Not every vendor can help like true starter credit can. These are vendors that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than one time to these vendors. So, this is to demonstrate you are trustworthy and will pay timely.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then move onto the retail credit tier. These are companies such as Office Depot and Staples.

Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.

One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or better.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are businesses like BP and Conoco. Use this credit to purchase fuel, and to fix, and maintain vehicles. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the small business’s EIN.

One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or more and a 411 company phone listing.

Shell may claim they want a particular amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get an approval.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Cash Credit Tier

Have you been sensibly managing the credit you’ve gotten up to this point? Then progress to the cash credit tier. These are service providers like Visa and MasterCard. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or more. And they also want you to have 10 trade lines reporting on your D&B report.

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

Also, they want you to have an established business.

These are businesses like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.

Start a New Business in Michigan – Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and take care of any inaccuracies as soon as possible. Get in the habit of checking credit reports and digging into the details, and not just the scores.

We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: fastcs.wpengine.com/monitoring.

Update Your Data

Update the data if there are mistakes or the info is incomplete.

Fix Your Business Credit

So, what’s all this monitoring for? It’s to contest any mistakes in your records. Errors in your credit report(s) can be taken care of. But the CRAs usually want you to dispute in a particular way.

Disputes

Disputing credit report inaccuracies normally means you send a paper letter with copies of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always mail copies and retain the original copies.

Fixing credit report inaccuracies also means you precisely itemize any charges you contest. Make your dispute letter as understandable as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you mailed in your dispute.

A Word about Building Business Credit

Always use credit smartly! Never borrow beyond what you can pay back. Keep an eye on balances and deadlines for payments. Paying off in a timely manner and completely will do more to boost business credit scores than just about anything else.

Building business credit pays. Good business credit scores help a business get loans. Your loan provider knows the business can pay its financial obligations. They recognize the company is authentic.

The business’s EIN connects to high scores and loan providers won’t feel the need to request a personal guarantee.

Business credit is an asset which can help your company for years to come.

Learn more here and get started toward opening a new business in Michigan.

Want to start a new business someplace else in America? Then check out our handy guide to starting a business in any state in the country.

Michigan’s Response to COVID-19

This is what Michigan is doing to address the COVID-19 situation. On March 16, Governor Gretchen Whitmer temporarily expanded eligibility for unemployment benefits. Benefits are extended to workers with an unanticipated family care responsibility, including those who have childcare responsibilities due to school closures, or who are forced to care for loved ones who become ill. Benefits can also go to workers who are sick, quarantined, or immunocompromised and with no access to paid family and medical leave or are laid off. And benefits can also go to first responders in the public health community who become ill or are quarantined due to exposure to COVID-19. 

See: michigan.gov/whitmer/0,9309,7-387-90499_90640-521770–,00.html

Over the Road Truckers Take Note

Load restrictions are suspended for deliveries that meet immediate needs for medical supplies and equipment related to the testing, diagnosis, and treatment of COVID-19; supplies and equipment necessary for community safety, sanitation, and the prevention of community transmission of COVID-19 such as masks, gloves, hand sanitizer, soap, and disinfectants. 

Restrictions are also suspended for delivering food for the emergency restocking of stores; equipment, supplies, and persons necessary to establish and manage temporary housing, quarantine, and isolation facilities related to the COVID-19 emergency.

There are fewer restrictions going to persons designated by federal, state, or local authorities for medical, isolation, or quarantine purposes and persons necessary to provide other medical or emergency services, the supply of which may be affected by the COVID-19 emergency 

See: michigan.gov/whitmer/0,9309,7-387-90499_90705-521893–,00.html

More Solutions

On March 17, the Governor applied for disaster relief for small businesses from the SBA. The Small Business Association of Michigan is encouraging the state to use the Business Interruption Insurance system to help those affected. 

Under the proposal, businesses could apply for reimbursement from the state or the Michigan Strategic Fund. It would be processed through the existing Business Interruption Insurance system or the Michigan Department of Insurance and Financial Services.

See: sbam.org/Resources/ArtMID/404/ArticleID/3817/SBAM-encourages-state-sponsored-relief-for-shuttered-small-businesses-using-the-Business-Interruption-Insurance-system