Michigan Commercial Lending Report: Fall 2026
Interest rates, bank lending, SBA loans, industrial real estate and tariffs, and what they mean for Michigan manufacturers and lower middle market companies
LVRG Business Funding · Updated September 23, 2026
For most of 2026, Michigan business owners weighing an expansion heard the same advice: wait. In March, Federal Reserve officials were projecting a half point of rate cuts across 2026 and 2027, and waiting looked like the cheap option.
That plan expired on September 16. The Fed raised its benchmark rate a quarter point to a range of 3.75% to 4%, and banks moved the prime rate from 6.75% to 7% the next day. It was the first prime rate increase since July 2023.
Higher rates are only part of the story. Capital for established Michigan companies has not dried up. Banks report steady lending standards and are competing for good commercial credit. The SBA's flagship loan program contracted sharply, yet it kept targeted fee relief for manufacturers. What changed is the route to the money: which lender says yes, to what, on what terms, and how quickly.
This report brings together the latest public data on rates, bank credit, SBA lending, industrial real estate and trade policy. It also includes findings from LVRG Business Funding's review of 30 recent Michigan commercial financing transactions.
Key Findings
Borrowing costs are rising again. The prime rate is now 7%. Sixteen of 18 Fed policymakers expect at least one more increase before year-end.
Banks are still lending. In the Fed's July survey, banks reported basically unchanged standards on commercial and industrial loans to companies of every size. They also reported narrower rate spreads for small firms.
SBA 7(a) lending fell sharply, but manufacturers kept a break. Approvals in the first nine months of fiscal 2026 were down 33.4% by count, and participating lenders hit a 30-year low. Manufacturers keep a 0% upfront fee on qualifying 7(a) loans into fiscal 2027, though at a lower loan size.
Michigan has two industrial real estate markets. West Michigan vacancy tightened to 3.2%. Southeast Michigan remains tight, at 3.6% to 5.3% depending on the source, but its vacancy has been rising. The national rate is 6.9%.
Steel costs have changed working capital math. Nucor's hot-rolled coil spot price is up more than a third from a year ago. USMCA now faces annual reviews, and refunds of tariffs struck down by the Supreme Court must be claimed.
Real estate dominates recent Michigan transactions. In LVRG Business Funding's review of 30 recent transactions, 80% included commercial real estate. Where a building loan was paired with a working capital line, the line averaged about 26% of the real estate loan.
Where Are Business Loan Interest Rates Headed in 2026?
The Fed held rates steady at every meeting from January through July, but pressure was building. At the July meeting, three officials favored an immediate increase. In September, the committee acted to counter inflation driven by rising oil prices and other factors.
The outlook has reversed. The September projections put the year-end fed funds range at 4% to 4.25%, the opposite of the cuts penciled in last spring. Longer-term borrowing costs moved first: the 10-year Treasury yield is up about a full percentage point from its February low.
For Michigan borrowers, the effects are immediate:
Floating-rate lines. Lines of credit tied to prime or SOFR reprice on their next cycle.
Fixed-rate real estate loans. These follow longer-term Treasury yields, which were already climbing.
Project planning. A project that only works if rates fall now depends on the opposite of what the Fed projects. Underwrite at today's rate with room for another increase.
Long-lived assets. For a building or other long-term asset, fixing all or part of the rate deserves serious consideration.
The Fed's next decision is October 28.
Are Michigan Banks Still Making Business Loans?
Yes. The Fed's Senior Loan Officer Opinion Survey is the best single measure of bank appetite, and its July edition cuts against the idea of a credit crunch.
Standards held steady. In the second quarter, banks left their standards for commercial and industrial (C&I) loans basically unchanged for companies of all sizes. They eased or held nearly every loan term.
Pricing improved for small firms. A moderate share of banks narrowed the rate spreads they charge small firms.
Competition is driving it. Among banks that eased, a large share named aggressive competition from other banks and non-bank lenders as a key reason.
Standards are looser than the long-run norm. Asked where standards sit relative to their range since 2005, banks placed small-firm C&I standards on the easier side of the midpoint.
One definition matters for Michigan's lower middle market. The Fed counts any company with annual sales under $50 million as a small firm, so every business between $1 million and $25 million in revenue falls in that group. Banks saw stronger loan demand from larger companies, driven mainly by spending on plant and equipment, inventory and receivables financing, and acquisitions. Demand from small firms was essentially flat.
Three caveats apply:
Timing. The survey closed July 2, before the September rate increase.
Commercial real estate is tighter. Banks eased standards on loans secured by nonfarm nonresidential property, the category that includes owner-occupied industrial buildings. They still describe those standards as relatively tight by historical measures.
Small-firm outlook. At the start of the year, banks said they expected loan quality to weaken for small firms in 2026 while holding steady for larger companies. That points to selectivity, not retreat.
LVRG Business Funding lends directly and also places transactions with Michigan banks, national institutions and specialized lenders. It sees the same pattern the survey describes. Bank appetite is strong for files that arrive complete, well documented and matched to the right institution's credit criteria. It thins quickly for files that do not fit a lender's program.
How Bank Consolidation Is Changing Michigan Banking
Michigan's banking landscape continues to consolidate:
Fifth Third and Comerica. Fifth Third completed its merger with Comerica on February 2, creating the ninth-largest U.S. bank with about $294 billion in assets. Full system and brand conversions were scheduled for the third quarter.
Independent Bank and Highpoint. Independent Bank completed its acquisition of Hastings-based Highpoint Community Bank on July 1, with systems integration set for November 9.
Isabella Bank and Grand River. Isabella Bank agreed in June to acquire Grandville-based Grand River Commerce for about $54.6 million, with closing expected in the fourth quarter.
Keweenaw Financial and Range Financial. In the Upper Peninsula, Keweenaw Financial agreed to acquire Range Financial.
Consolidation often expands lending capacity. If your bank is going through a conversion, three steps are worth taking before a time-sensitive request comes up:
Confirm your line of credit's maturity date.
Review your covenant terms.
Find out who will approve credit decisions after the transition.
What's Happening With Non-Bank and Asset-Based Lenders?
Asset-based lenders, finance companies and private credit funds fill real gaps. That is especially true for companies whose borrowing strength sits in receivables, inventory and equipment rather than cash-flow ratios. This part of the market is under its own pressure:
Industry researchers describe private credit as entering 2026 in its most challenging environment since the 2008 financial crisis.
A Federal Reserve research note in August warned that weaker investor sentiment could limit private credit available to some middle-market companies.
Banks report that their standards for lending to non-bank lenders sit near the tightest levels since 2011.
For borrowers, two implications follow:
Expect more diligence on asset-based facilities, including field exams, receivables verification and inventory appraisals.
Treat a lender's own funding sources as part of your due diligence. A credit facility is only as dependable as the capital behind it.
Why Did SBA Loan Approvals Drop in 2026?
The SBA 7(a) program contracted sharply in fiscal 2026:
Approvals fell. In the first nine months, gross 7(a) approvals dropped 33.4% by count and 20.9% by dollars from a year earlier.
Small loans were hit hardest. Loans of $500,000 or less fell about 38% by count, compared with about 15% for larger loans.
Lenders left the program. Participating lenders fell to 1,141, a 30-year low.
The Midwest saw some of the steepest declines. An analysis of first-half data by The Business Journals found Michigan among the states posting substantial drops.
The causes appear to be the program, not the market. Stricter operating rules took effect in June 2025, including a higher minimum credit score and added verification. Meanwhile, Fed surveys show small-business loan demand essentially unchanged. Borrowers kept asking. The program got harder to use, and fewer lenders stayed in it.
Manufacturers still received targeted fee relief:
Fiscal 2026 (through September 30). Manufacturers paid no upfront guaranty fee on 7(a) loans of $950,000 or less. On 504 loans, the program built for owner-occupied real estate and heavy equipment, both the upfront and annual fees were waived at any loan size.
Fiscal 2027 (starting October 1). The 0% upfront fee continues for 7(a) loans of $700,000 or less made to manufacturers, certain food supply chain businesses and rural businesses. Confirm current 504 terms before applying.
SBA financing is a specific tool. It can be the right fit for some transactions, such as a manufacturer buying its own facility with SBA fee relief. It is also slower and more document-heavy than conventional financing, and a single 7(a) loan is capped at $5 million. Its rules have also changed repeatedly: fees were reinstated in March 2025, operating rules tightened that June, and fee schedules changed again for fiscal 2026 and fiscal 2027. That instability is part of why lender participation has fallen to a 30-year low. LVRG facilitates SBA financing when it is the best option for a client. In the current environment, that has made SBA the exception rather than the default for established Michigan companies.
How Tight Is Michigan's Industrial Real Estate Market?
Michigan now has two distinct industrial markets.
Southeast Michigan
Southeast Michigan remains tight by national standards but has stopped tightening. Brokerages measure different inventories, so their figures vary:
CBRE: 3.6% vacancy, up 20 basis points and the first increase since early 2025. Net absorption turned negative by about 675,000 square feet.
Colliers: 5.2% vacancy, with a second straight quarter of occupancy losses.
Savills: 5.3% vacancy, with year-to-date absorption still positive at 1.9 million square feet.
Cushman & Wakefield's data shows the longer trend most clearly. Detroit vacancy rose gradually for eleven straight quarters to 4.1% in the first quarter, its highest level since 2015.
Rents have flattened at about $7.84 per square foot, well below the national average of roughly $12.18. New supply is also coming. About 2.8 million square feet is under construction, up roughly 60% from a year ago, and four of seven speculative projects broke ground this quarter.
West Michigan
West Michigan is moving the other way:
Vacancy fell from 3.4% to 3.2% in the second quarter.
Net absorption was about 524,000 square feet, driven by manufacturers occupying space.
Asking rents rose year over year to about $6.44 per square foot.
Only 35,000 square feet of new space was delivered.
National industrial vacancy is 6.9%.
What This Means for Buyers
West Michigan: Sellers still hold the leverage, and a buyer without financing in place is at a disadvantage.
Southeast Michigan: The balance has shifted modestly toward buyers, particularly on larger and older buildings.
Smaller buildings everywhere: Averages hide the segment most lower middle market companies shop in. Nationally, smaller shallow-bay buildings are the tightest size category, at 4.8% vacancy.
In both markets, the sequence that works is the same: arrange owner-occupied commercial real estate financing before negotiating for the building. See also: Outgrown Your Building?
How Are Tariffs Affecting Michigan Manufacturers' Financing Needs?
Three trade developments since midyear change the planning horizon.
USMCA moves to annual reviews. On July 1, the United States declined to renew USMCA in its current form, though the agreement remains in force. That triggers a joint review every year through 2036, although the three countries can still agree to a 16-year extension at any point. Trade uncertainty has shifted from a one-time event to a recurring one.
New and continuing duties. A 50% tariff on certain Canadian goods, including motor vehicles, took effect August 19. It applies even to goods that qualify under USMCA. The 50% Section 232 tariffs on steel and aluminum also continue to apply to Canadian and Mexican metal. General Motors projects $2.5 billion to $3.5 billion in tariff costs this year, mostly from the steel and aluminum duties.
Refunds that must be claimed. On February 20, the Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) did not authorize the President to impose tariffs. The Court of International Trade then ordered those duties refunded to importers. Refunds are not automatic: importers must file through U.S. Customs and Border Protection's CAPE system. The government has appealed the portion covering older, finalized entries. Section 232 metals tariffs are not affected by the ruling.
For working capital, the most important trade figure is the price of steel. Nucor, one of the largest U.S. steelmakers, set its hot-rolled coil spot price at $1,200 per short ton in mid-September, compared with $875 at the same point last year. Buyers also report limited availability. That means more than a third more cash tied up in the same tonnage, on the shelf, in work in process and in receivables. A working capital line of credit sized in 2024 may be undersized for the same business today, simply because the inputs cost more.
Is Michigan Manufacturing Growing or Shrinking?
Michigan lost about 7,000 manufacturing jobs in the year ending June 2026, a 1.2% decline. About 4,000 of those losses were in auto parts manufacturing, down 3.5%. Vehicle assembly added an estimated 500 jobs over the same period.
Auto parts makes up roughly one-fifth of Michigan's manufacturing workforce but accounted for more than half the losses. The rest of the manufacturing base declined by less than 1%. That describes softness concentrated in one segment, not a broad collapse. Nationally, the ISM manufacturing index read 55.6 in July, its seventh straight month of expansion.
Two areas stand out for growth.
Defense
Scale. Michigan's defense economy generates about $30 billion in activity and supports more than 166,000 jobs. The state released a five-year plan in 2026 to expand its defense industrial base.
Concentration. Macomb County received 65% of Michigan's federal defense contract dollars in 2024: more than 4,800 contracts worth $3.21 billion.
Domestic sourcing. GM and Ford recently won Army contracts for prototype tactical trucks under new rules that restrict China-sourced materials, parts and software. That shift favors domestic suppliers who can document their supply chains.
Ownership Transition
McKinsey estimates that about six million U.S. small and midsize businesses will face ownership transitions by 2035 as baby boomer owners retire. More than a million are viable candidates for sale, representing up to $5 trillion in enterprise value. More than half of small-business owners are over 55, and one in four is 65 or older. For growth-minded Michigan owners, the next expansion may be an acquisition rather than a new building.
What Are Michigan Companies Financing? Findings From 30 LVRG Transactions
LVRG Business Funding reviewed 30 recent Michigan commercial financing transactions totaling $101.8 million, as published on its Deal Closings page. The dataset reflects LVRG's focus: owner-occupied real estate, working capital and asset-based lending for established companies, most of them manufacturers. It is a field report, not a statistical sample of the market.
Real estate dominated. Of the 30 transactions, 24 included commercial real estate, which accounted for about $71.4 million, or 70% of total dollars. Twenty-three of those deals financed purchases of existing properties. The other financed new facility construction for a defense machine shop in Washington Township. When capacity is the constraint, space is the one input that cannot be solved with overtime or new hires.
Buyers needed working capital as well as the building. Fifteen transactions paired a real estate loan with a working capital line. In those deals, the line averaged about 26% of the real estate loan, ranging from 14% to 37%. That is roughly one dollar of revolving credit for every four dollars of real estate. Moving, commissioning equipment, adding staff and carrying more inventory all cost money before a new facility produces revenue.
Materials drove line sizes. Of the 21 transactions that included revolving credit, at least 10 were explicitly tied to materials or inventory, including raw steel, coil, resin and stone. With steel prices up more than a third from last year, this is where tariff costs show up on a balance sheet.
The largest deal came from the sector with the worst headlines. The largest transaction in the dataset, $11.1 million, financed a plant acquisition for an automotive component assembler in Auburn Hills. Automotive transactions were 10% of the dataset by count but about 20% by dollars. Several fabrication, stamping and tool-and-die borrowers likely serve automotive customers in part. Sector averages can hide wide differences between individual companies.
Defense deals ran larger. Three defense and aerospace transactions totaled $16.4 million and averaged about $5.5 million. That is roughly 60% above the dataset average of $3.4 million. Two of the three were in Macomb County.
Most of the capital went to manufacturers. Twenty-two of the 30 transactions, about 83% of dollars, financed manufacturers in machining, fabrication, stamping, tooling, plastics, wire and cable, and packaging. The rest went to contractors, logistics operators, distributors and service businesses. The median transaction was about $2.7 million, and six exceeded $5 million.
What Should Michigan Business Owners Do Now?
Underwrite at today's rates plus a cushion. If a project only works with rate cuts, it is not ready.
Review your bank relationship before you need it. This matters most if your bank is going through a merger or conversion.
Resize working capital to 2026 input prices. Test your credit line against current inventory and receivables, not what they cost two years ago.
Ask your customs broker about IEEPA refunds. Refunds require a filing through CBP's CAPE system and will not arrive automatically.
Know the SBA fee calendar. Fiscal 2027 fee relief for manufacturers applies to smaller 7(a) loans than fiscal 2026 did.
Arrange financing before you shop for a building, and budget for the move. Plan working capital alongside the real estate, not after it.
Match the structure to the need. A term loan, a revolving line of credit and an asset-based facility solve different problems. The most expensive financing mistake is often the wrong structure, not the wrong rate.
What to Watch Through Year-End 2026
The Fed's October 28 decision, and whether a second increase arrives before year-end
Completion of pending Michigan bank conversions and acquisitions
The federal appeals ruling on refunds for older IEEPA entries
Whether new speculative construction pushes Southeast Michigan vacancy higher
Final fiscal 2027 SBA terms for 504 loans
Developments in the annual USMCA review cycle
Frequently Asked Questions
What is the prime rate in September 2026?
The prime rate rose to 7% on September 17, 2026, up from 6.75%. The increase followed the Fed's move to raise the federal funds range to 3.75% to 4%.
Are Michigan banks still making commercial loans?
Yes. In the Fed's July 2026 survey, banks reported basically unchanged standards on business loans and narrower rate spreads for small firms. Standards on commercial real estate loans remain relatively tight by historical measures.
Why are SBA loans harder to get in 2026?
The SBA tightened its operating rules in June 2025, and fewer lenders now participate in the 7(a) program. Approvals fell 33.4% by count in the first nine months of fiscal 2026, with loans of $500,000 or less hit hardest.
Do manufacturers get a break on SBA loan fees?
Yes. Starting October 1, 2026, manufacturers pay a 0% upfront guaranty fee on qualifying 7(a) loans of $700,000 or less. In fiscal 2026, that threshold was $950,000.
Is Michigan's industrial real estate market still tight?
Yes, though the two regions are moving in different directions. West Michigan vacancy was 3.2% in the second quarter of 2026 and falling. Southeast Michigan estimates range from 3.6% to 5.3% and have been drifting higher, compared with a national rate of 6.9%.
Can Michigan businesses get refunds on tariffs they paid?
Importers who paid tariffs under IEEPA may be eligible for refunds after the Supreme Court's February 2026 ruling. They must file through CBP's CAPE system. Section 232 steel and aluminum tariffs are not refundable under that ruling.
How much working capital should a business plan for when buying a building?
In LVRG Business Funding's review of 30 Michigan transactions, working capital lines paired with real estate loans averaged about 26% of the real estate loan amount. Actual needs vary with inventory, equipment moves and ramp-up time.
What is the LVRG Michigan Commercial Lending Report?
It is a recurring market report from LVRG Business Funding, a Detroit-based commercial finance firm. It combines public data on rates, bank credit, SBA lending, industrial real estate and trade policy with findings from LVRG's own Michigan transactions.
Methodology and About This Report
Market data comes from the public sources listed below and is current as of September 23, 2026. Transaction data reflects 30 recent Michigan closings published on LVRG Business Funding's Deal Closings page. Percentages and averages are LVRG calculations based on that data. This report is general information and not financial, legal or tax advice.
LVRG Business Funding is a Detroit-based commercial finance firm. It lends directly and arranges financing through Michigan banks, national institutions and specialized lenders for manufacturers and lower middle market companies with $1 million to $25 million in annual revenue, in transactions from $500,000 to $15 million. Owners who want to discuss how these conditions apply to a specific project can contact LVRG.
Sources
Federal Reserve: FOMC statement and Summary of Economic Projections (September 2026); Senior Loan Officer Opinion Survey (July 2026); FEDS Notes on private credit (August 2026); H.15 prime rate data and bank prime rate announcements
SBA and small-business lending: U.S. Small Business Administration fiscal 2026 and 2027 fee guidance; Lumos Data analysis of SBA 7(a) data; The Business Journals; Coleman Report
Bank announcements: Fifth Third Bancorp, Independent Bank Corporation, Isabella Bank Corporation; American Banker
Industrial real estate: Cushman & Wakefield, CBRE, Colliers and Savills market reports (Q1–Q2 2026)
Trade: Office of the U.S. Trade Representative; USMCA Article 34.7; Supreme Court, Learning Resources v. Trump (2026); U.S. Customs and Border Protection; Steel Market Update
Economy: Bridge Michigan analysis of BLS data; Institute for Supply Management; Michigan Office of Defense and Aerospace Innovation; Macomb County; McKinsey Institute for Economic Mobility; With Intelligence; CNBC