Can Cannabis Businesses Get A Loan?
If you want a piece of the pot pie, there are so many ways you can earn. One of the best things you can do though, is to find a niche and start a business.
However, not everyone has the financial resources to fund a cannabis startup. Green money is a tricky subject but it doesn’t have to be. You can have an outstanding business model, a unique product idea, and everything needed to succeed except the cash, but expect to still face some obstacles from banks who are too afraid to support cannabis businesses because cannabis is still considered a Schedule 1 drug.
This is where alternative loans come in.
Aspiring business owners need to be prepared that forecasting success with your cannabis business idea is still smoky at best. You have to know what lies ahead in the industry, by staying on top of trends and news. Established cannabis businesses don’t face the same risks that startups do, but you can still get a loan from alternative lenders who are capable of providing you with the capital you need, which is crucial for succeeding in the nascent industry.
Alternative business loans can be used for almost any kind of cannabis business model you might have. They can provide loans to cover the most essential basics of running a business: hiring, payroll, supplies, and marketing collateral are just some of these examples.
Equipment Financing
To get your cannabis equipment financed, naturally you will have to be based in one of the states that have legalized cannabis. The requirements will vary; but if you’ve already been operating a cannabis business for over a year it tends to get easier. Good credit and bad credit programs will typically require a thorough analysis of your company’s financial situation, so you’ll need to submit documents including bank statements, personal financial statements, tax returns, company financials, and a credit application form.
For existing cannabis businesses who already have good credit as well as a 4-year term, it’s safe to assume that the starting point would be payments of roughly $1,500 each month for every $50,000 you borrow. But if you have a bad review score, you might be required to pay $2,000 a month or more.
New businesses face a higher risk which translates to higher rates; so if you have a good credit you’ll probably look at paying around $1,600 a month and around $2,400 if you have bad credit.
Private Equity and Other Sources of Funding
Many private investors have taken the risk of backing cannabis businesses because cannapreneurs still experience challenges with getting a bank loan. Private equity funds, venture capitalists, and pretty much any wealthy individual (angel investors) can also help you fund your cannabis business.
There are some requirements to apply for a loan: businesses should already be incorporated, have a banking account with the same name, your dispensary or grow operation should have been in business for at least 6 months, have monthly gross sales of at least $10,000, and have a good credit score of at least 500. The requirements differ but firms have pretty much similar rules for what’s still considered to be a high-risk business.
Other kinds of public investing companies that invest in cannabis businesses may also take a ownership (equity) in the companies within their portfolio as an exchange for investing. However, the cannabis businesses will still have full control when it comes to operations.
While it might sound daunting, remember that anyone who lends you money for a cannabis business is still taking a big risk. If you already have a credit score of at least 650 and have been in the business for some time, it will be much easier but you may be required to make a down payment or have collateral equivalent to at least 20% of the money you’re applying to borrow. These figures could change depending on the state of your financials.
If your credit score is under 650, your borrowing amount could be limited to around 10% of your yearly profits. You might also be required to post a security deposit of at least 10% and will need to come up with more collateral. The cannabis industry continues to evolve and soon enough there will be less obstacle to deal with when it comes to getting the financing to provide people with the medicine that they need.
OTHER STORIES YOU MAY ENJOY...
HOW TO WRITE A GREAT MARIJUANA BUSINESS PLAN, CLICK HERE.
OR..
