Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
Trying to finance your cannabis company and getting a cannabis business loan can be extremely difficult since the laws around it are still so patchy (even though it’s legalized in many states).
You won’t be able to borrow from a well-known bank and you’ll have to work a little bit harder to secure it. But it is more than worth it!
We know the financing world can be complicated, which is why we have compiled this extensive guide on how to navigate it.
Unfortunately, even though cannabis is legalized in many states of the United States of America, you won’t be able to receive cannabis funding from banks for it. Luckily, there are other options out there that would be more than happy to finance your cannabis business!
Some lenders like Lending Valley specialize in alternative financing, including cannabis business loans. They are aware of how your company works and have programs that are bound to meet your needs.
Usually, you will be able to apply for a standard loan with these lenders to pay for one-off items.
Some specialist financing companies will give you business lines of credit which will assist you in paying for the day-to-day running costs.
This type of secured loan can be requested to buy the properties or land required to run your business.
Companies can raise up to $1 million by opting for the crowdfunding version of cannabis financing. The US Securities and Exchange Commission enables someone to put in $2,000 into start-up and smaller companies in exchange for a stake.
There are three crowdfunding platforms that are perfect for raising funds for your cannabis business. They are:
CannaFundr came into being in 2014 and will link your business to investors. You will never know who they are as it is completely anonymous, but you don’t have to pay to use the site.
It does come with its drawbacks though. The website is pretty hard to use and approval can take ages thanks to their high-security level. Also, you will never be allowed to receive investor feedback, nor take a look at other people’s projects.
This one is slightly different since it works on a rewards premise. Basically, instead of giving investors a slice of your business, you give them gifts.
It is easy to navigate around the site for all users. Although, it has already run into some problems, despite its short existence.
Fundanna is more or less risk-free! They specialize in linking cannabis-based businesses (no matter if it’s recreational or medical marijuana is being sold) to global cannabis investors.
Having said this, you have to pay to use it which could be a drawback for some start-ups (depending on how much cash you have).
Regardless of which platform you use, there are essential steps you should take to have a successful campaign. Don’t fret, we have them all here for you!
Your business plan is the foundation for your crowdfunding project. It is the only way you can make your company understood and attempt to entice people to invest in your exciting venture.
People looking to invest probably don’t want to contact you (or maybe your chosen platform doesn’t allow them too). Your profile, therefore, is all they have to get to know you. To get the best out of it, you will want to have a marketing professional by your side to work their magic.
Always read the rules and regulations of these crowdfunding sites. You don’t want to fail at raising your money because you didn’t understand what was going on.
The site’s managers can change the regulations at any time. Ensure you aren’t shut down because you are raising above their maximum limit. Some people choose to hire a lawyer to do this for them if they can’t keep up (this comes with extra costs though).
You are bound to experience some sort of blockages in your cannabis business endeavours. Why? It is simply because it’s such a new industry and the laws surrounding it are all over the place. For now at least!
You will find this type of cannabis business loan at the alternative financing companies we discussed earlier.
These cannabis loans can be used to buy or loan software, vehicles and any other equipment.
Some firms might let you take out short-term loans with high-interest. On the other hand, they may decide to give you funding as long as they get a large slice of your business.
Investors can help you get your business off the ground. However, they will typically deal with smaller monies.
If you have a great credit score and history, it might be less hassle to take out a personal loan. Once you’re approved, you can use the money to start or expand your cannabis business.
Venture Capitalists will usually want a stake in your business. However, they are wealthy and can help you a great deal with your cannabis financing.
If you own your home, you can borrow against it with a line of credit or a home equity loan. This does depend on your circumstances, but it is worth a try.
Even though cannabis is legalized in several states, at a federal level, it’s still illegal. If a bank decides they want to work with a cannabis company, it could be seen as a risk that is not worth taking. In turn, it may affect their public reputation.
Plus, if they offer cannabis loans, they will become viable if the vendor sells to a minor or is distributing the substance across state borders. In the eyes of the bank, the risk is greater than the reward.
Everyone involved in any aspect of the cannabis growing, producing and selling process can secure cannabis business loans! This includes:
Cannabis loans are similar to regular loans in the sense that you can use them for almost any business-related cost. People in this industry usually utilize their cannabis financing for:
Regardless of what business you are starting, there are costs that come with registering it with the proper authorities. Typically, this includes a business license and even a state tax license, depending on the laws.
All of this can be as expensive as $78,000 every year. It’s no wonder company owners need a loan for it!
As you probably already know, the initial set up and every day running of a growhouse is costly. Why? It is down to the fact that the climate has to be just right inside, so you can achieve the best product.
So, how expensive is it? Well, according to experts, it can be around $75 per square foot.
All companies need staff, and so using your cannabis loans to help with this is a smart move. In doing so, you will boost your productivity and thus, increase your sales. What more could you want, right? However, you need to be able to pay them before you reap the rewards!
There is so much equipment that goes along with running a cannabis business that you may not have enough capital to acquire everything right away. If this is the case for you, you’re in luck!
You can use your cannabis financing to buy any necessary equipment or, many lenders will allow you to lease equipment. What is the benefit of leasing over buying? You will not incur any costs from having to maintain it — the owners do that.
When you are trying to get your business off the ground, running a dispensary has daily costs that you may not be able to afford. You could definitely benefit from a loan. It will give your company the kick it needs.
If you own a growhouse, you may well need to use your loan for covering the immensely high electricity bill!
Any business needs somewhere to operate from — your one is no different. Thankfully, cannabis loans can help you buy, rent or grow your current site.
Just like applying for any type of loan like an unsecured business loan, the cannabis financing process has a few steps you will need to go through. Depending on your lender, it could take a little while to get approved.
To start with, you will need to understand the loan request. Ensure you know:
This will help the lender to review whether you fit the criteria well enough to go onto the next stage of the cannabis business loan process.
If they decide you can move further, you will need to make sure you have the correct documents. This could include:
You may need to supply further evidence if it is requested from your lender.
The lender will then review everything you have given to them. This will allow them to decipher the viability and risk of your business.
Once they have finished reviewing your documents, they will decline your cannabis financing request or state an offer.
This offer could be a letter of intent, memorandum of understanding or a term sheet, depending on the lender. Regardless of which document type it is, you should expect to find these factors on it:
Along with all of this, there might be additional criteria that you and your business have to meet to receive the final approval. For instance, the lender may ask you to complete a site inspection.
After all the terms have been met, you will be granted a final approval and loan agreement. You must read the agreement to check that you are happy with the terms and content. However, if you aren’t, you may fall short since the lender will probably have restrictions on what they can change.
If you like what you read, both parties will sign it and the closing plan is drawn up.
This is the part where you receive your money! You will get the lump sum into your bank account and everyone can relax and be happy!
Usually, you will not be able to acquire a cannabis business loan from a bank (even though it is legal in the United States of America). However, you will still need to meet certain criteria to have a good chance of being approved. Why? Investors, private firms, and others like to know they will be making a smart decision.
To be successful at the end of the application process for cannabis loans, you must:
This all depends on where you are applying to. If crowdfunding is the route you’re taking for your cannabis financing, you will have to offer incentives for those people to give you money. There is a lot of competition on crowdfunding platforms! You need to make sure you stand out.
For those who don’t know, Lending Valley is the leading FinTech company that supplies funding to small- and medium-sized businesses. Over the years, they have given out over $2 billion in various financing forms across a blend of different industries in the United States.
Moreover, they understand that the problems businesses endure are often beyond the CEO’s control. So, they never penalize you for having no credit or an unsatisfactory credit score.
The terms they offer your cannabis business will vary depending on a variety of factors like your credit score and company circumstances. Having said this, there are standard terms that come with loans that you should be privy too before applying.
Lending Valley provides this financial package that allows you to have access to money when you need it most — think credit card but bigger!
The great thing about this is you will only pay interest should you draw out funds. Plus, you have immediate access to the amount you need — useful if equipment or lamps fail at the last second.
However, since it is an ongoing pot of money, they require regular updates about your business, finances, cash flow, and other factors. Moreover, they can stop the line of credit at any time if your reports don’t add up.
The specific costs will vary depending on the lender and type of loan you go for. But there are two main fees you will want to look out for.
This is the percentage that your lender will charge on top of the amount you have requested. It can be anywhere from 5% to 20% and beyond.
Your cannabis business loan will more than likely come with fees. Typically, it will be between 0% and 10% of the amount you take out.
It is a fantastic time to get into the cannabis business market since there has been a surge in legalization across the United States of America.
Already, cannabis is legal for recreational and medicinal use in:
Alongside this, many states have been granted legal access to marijuana for medical purposes, including:
So, as you can see there is a huge market for it — now is the time to take advantage of that!
Once you are up and running your business daily, you will be thankful for the cannabis financing you acquired at the start. Trust us, it’s hard work but epically rewarding!
