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Can a Cannabis Business Get Business Credit?

Securing funding for a cannabis business is perhaps the biggest hurdle to entry. Despite the cannabis industry continuing to see record profits – sales hit a record $17.5 billion in 2020, a 46% increase on 2019 – earning a slice of this pie is no simple task

Whether you’re opening a dispensary or a grow operation, you need funding for equipment, premises, staff, license application fees, marketing, and more. While you can do so more cost-effectively, you’ll still need a sizable initial investment.

Which raises the question: “Can a cannabis business get business credit?”

Business credit is simply a company’s ability to buy something now and pay for it later. For fledgling cannabis businesses, that’s a lifeline – and is essential for growth. However, in the cannabis industry, federal prohibition dissuades major financial institutions from extending a line of credit to a cannabis-related business.

Given this stringency, there are only three primary ways to finance your growth:

Below, we’re exploring the pros and cons of the middle option – and we’ll touch on other options you have available for raising funds.

Why are cannabis business loans so rare?

Banks and other major financial institutions typically operate nationwide. Their transactions are therefore carefully scrutinized by the federal financial authorities for any signs of criminal or wrongful actions. 

While marijuana is now legal in certain states, it remains an illegal drug federally. Businesses found to aiding and abetting these activities could be found guilty of a felony – that includes supplying business loans. At certain times, e.g., under the Cole memorandum, there was an agreement not to prosecute businesses operating legally under state marijuana laws. However, these rules tend to change with the administration, creating potential penalties financial institutions are unwilling to risk.

Certain financial institutions, like Safe Harbor, do extend business credit to cannabis businesses. However, these institutions were established specifically to tackle this crisis of underbanking. Nor are all businesses operating in the sector reputable or trustworthy.

Can a cannabis business get business credit?

Yes. Though the options are more limited, a cannabis-related business can still access some forms of credit. Here are the possible avenues to consider:

  1. Use your home equity

Harnessing your existing assets seems like the most obvious way to access credit. After all, you already own the property. There are two options for equity:

A significant upside of these loans is their low-interest rates. Because you own the property, there’s less risk for the lender. However, you may still need to disclose what you’re using the money for – and that can prevent cannabis-related businesses.

2. Use a credit card

Using a credit card as your primary business credit is a little risky. While certain credit cards do have a 0% introductory rate, low credit scores and late payments will substantially increase the rate you’ll need to pay. 

The upside, however, is the easy access to credit. As soon as the card is received, you can fund your cannabis business immediately. Credit cards can act as a temporary stop-gap for businesses in dire need of a cash injection while you secure more reliable funding sources.

3. Apply for a personal loan

Personal loans are subject to the rules of the banks. In some cases, the loan lenders do not stipulate what the money can be used for; others prohibit the use of the funds for business purposes (especially illegal businesses like the cannabis industry). 

Nevertheless, you can secure a low interest rate loan without too much hassle if you have a good credit score. Higher credit scores may lead to high-interest rates with some lenders.

4. Consider an online business loan

There’s no shortage of business loans available – it’s their accessibility that’s an option. Traditional banks are unlikely to accept your loan application, creating a market for numerous lenders online.

Online business loans help streamline the application process, and they have high-interest rates. However, this often comes at the cost of regulatory compliance and high-interest rates. The former risks your business license and ability to operate.

You’ll want to do your background research on these organizations to ensure they’re trustworthy and reputable. Safe Harbor, for example, delivers cannabis business loans to all types of cannabis businesses, from service companies to retailers. We do require good personal credit history, and you’ll need to prove you can repay the loan.

Other funding options

If the options for business credit aren’t available, there are still some other potential sources:

Final thoughts

Funding your business is all about appearing as profitable and legitimate as possible. While the funding options are sparser for cannabis-related businesses, acquiring business credit is still possible. Look for loan opportunities at cannabis-friendly banks, evaluate your assets, use a credit card, or consider asking friends and family.

For more information about cannabis business loans, see our loan application page

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Do you own a hemp, CBD, dispensary, marijuana, or cannabis business and need a business bank account? We’ve validated over $8 billion dollars in cannabis-related funds since 2015. Bank with confidence. Bank with Safe Harbor Financial today.

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