Businesses looking to invest in Detroit through a relocation or starting up in Detroit are eligible for a number of different financial incentives including tax incentives and financing. A project meeting the program eligibility requirements can be located anywhere in the city. Many of these programs may be in addition to the benefits of the Business Zones.
Manufacturers and companies that are involved in certain high technology activities may apply for up to 12 years of real and personal property tax abatement. For new construction or new machinery and equipment, the abatement reduces the assessment on these items by fifty percent (50%). For an existing building that is being renovated, the abatement is for the full amount of the improvements thus keeping the assessment at the pre-renovated level.
Manufacturing, mining, research and development, wholesale trade, and office operations may apply for personal property tax abatement. The abatement applies to all new personal property and is a 100% abatement of personal property taxes on that new personal property during the period approved by City Council.
Businesses that locate to a property that is a “facility” (i.e. contaminated), functionally obsolete or blighted may apply for two benefits under the brownfield redevelopment program. Upon approval of a brownfield redevelopment plan, a business can apply for a Single Business Tax credit of up to ten percent (10%) of the real and personal property investment made at the site. Also, the plan can include provisions allowing the Detroit Brownfield Redevelopment Authority to reimburse the developer or business costs related to certain eligible activities (e.g. remediation, site preparation and demolition).
Businesses that locate to a building that is a “facility” (i.e. contaminated), functionally obsolete or blighted may apply for obsolete property rehabilitation tax abatement. The program replaces the normal property tax with a special tax based on the pre-development assessment of the building.
Companies engaged in manufacturing, high-technology such as research and development, wholesale and trade, or office operations that are financially sound, and that have financially sound proposed plans, are eligible to receive a tax credit against the Michigan Single Business Tax (SBT) liability attributable to a new location or expansion project and/or the amount of personal income tax attributable to new jobs being created. Each credit may be awarded for up to 20 years and for up to 100% of the amount attributable to the project.
This powerful financing tool offers favorable interest rates and the ability to borrow with terms generally longer than traditional financing. Industrial Revenue Bonds (IRBs) and Enterprise Zone Facility Bonds (EZBs) average 75-85% of prime interest rates including the cost of letters of credit, remarketing fees, bond counsel fees and other expenses. IRBs are restricted to manufacturing projects or projects by nonprofit corporations. EZBs can be for any business meeting program requirements that are located in Detroit’s Empowerment Zone (see Business Zones). Both IRBs and EZBs are restricted to acquisition of land, buildings and new equipment. Taxable bonds can be used to provide more comprehensive financing than tax-exempt bonds including non-manufacturing projects and working capital. Taxable bonds issued by a Michigan governmental entity are exempt from state and local taxes thus lowering the average interest rate to 85-95% of prime.
A citywide program for fixed-asset financing of commercial businesses, DRLF funds may be used for up to 40% of the costs of an eligible project, to a maximum of $200,000. The remaining 60% may be provided by a private lender, the borrower or both. The loan term in most cases will be consistent with other loans made on behalf of the project although no longer than the useful life of the financed asset. The rate shall be fixed at 4% under the prime rate, but not lower than 4%.
The Downtown Development Authority established this loan program to assist building owners, tenants and business owners located in or to be locating in the Detroit Development Area No. 1. This program provides funds for the construction, redevelopment or improvement of real property and, in special cases, working capital for new and existing businesses. At least 50% of the costs of an eligible project must come from private sources. SBLT loans are available to a maximum of $200,000 per building, tenant or business. Rates are typically below market.
The Downtown Development Authority established this loan program to stimulate additional residential and commercial activities in the Detroit Development Area No. 1. This program provides funds for the construction, redevelopment or improvement of real property. Generally this program supplements private investment and looks for at least $2 of private funds for every $1 of public funds. The actual terms and conditions of the loan will be negotiated on a project-by-project basis.
The SBA 504 Loan program is available to viable small and medium sized businesses (net worth of less than $6 million and average net income after tax of $2 million or less). Funds may be used for land and building acquisition, new construction of buildings or expansions and longer useful life machinery and equipment (>10 years). The program offers a low down payment, fixed interest rates and longer terms. Working capital financing is ineligible under this program (see SBA Guaranty Programs below). Eligible project size is between $125,000 and $2,000,000. A typical SBA 504 package consists of 50% from a private lender that gets first lien on assets, 40% from the SBA 504 program and a 10% down payment from the borrower. Wayne County Economic Development is a local SBA lender.
The most common SBA Guaranty Loan is the 7(a) program. The 7(a) Loan Guaranty provides short- and long-term loans to eligible, credit-worthy start-up and existing small businesses that cannot obtain financing on reasonable terms through normal lending channels. Loans under the program are available for most business purposes including purchasing real estate, machinery, equipment, inventory or working capital. Maturity is up to 10 years for working capital and up to 25 years for fixed assets. For loans under $250,000, there are specialized 7(a) programs such as Community Express and LowDoc that offer faster turnaround than the main 7(a) program. SBA 7(a) loans are accessed directly through local banks.
| Other SBA Financing Programs |
The SBA also sponsors two important programs for small businesses in their growth stage seeking equity capital, long-term loans, debt-equity investments and management assistance: Small Business Investment Companies (SBICs) and the Angel Capital Electronic Network (ACE-Net). SBICs are privately owned and managed, profit motivated companies, investing with the prospect of sharing in the success of the funded business. SBICs typically provide both loans and equity. The ACE-NET provides an Internet-based secure listing service for entrepreneurs seeking equity financing from accredited “angel” investors.
The Wayne County Urban Loan Fund is a loan program designed to encourage a bank to partially finance a deal that may not be eligible for conventional financing. A typical Urban Loan Fund deal consists of a primary lender financing 60% or more of a project, the Urban Loan Fund financing 30% to a maximum of $50,000 and a 10% investment from the borrower. The Urban Loan Fund takes a subordinated position to the primary lender on asset liens. Eligible projects include land acquisition, building acquisition, building or leasehold improvements, machinery and equipment acquisition and working capital (in conjunction with a fixed asset purchase).
| Detroit Community Loan Fund (DCLF) |
The DCLF can provide private for-profit Detroit-based businesses between $50,000 and $250,000 of funds in the form of term loans or lines of credit. Businesses must have at least 12 continuous months of sales revenues of at least $125,000/year and a strong potential for growth, profitability and job creation. Capital provided may be used for working capital for expansion, equipment, accounts receivable financing, business acquisition, physical plant expansion, improvements to manufacturing systems and, to a limited basis, marketing. Typically DCLF loans are subordinated to a senior lender, although DCLF may serve as the senior lender. Contact Shorebank Enterprise at (313) 886-2091 for more information.
| Detroit Investment Fund (DIF) |
The Detroit Investment Fund (DIF) is a $52 million private capital fund that provides long-term financing to growth-oriented, well-managed businesses, as well as progressive real estate projects in the City of Detroit. The DIF gives special attention to transactions with the potential to have a significant impact upon the City of Detroit’s economic revitalization. Typically the DIF is comfortable investing between $500,000 and $4 million with expected liquidity within 5 to 8 years.
While certainly not a complete list of mezzanine and venture capital firms in the area, the link above will bring up a contact list of those companies DEGC has learned about over the years.
