Finance is the lifeblood of any business. Access to cannabis business loans can open new markets, allow substantial inward investment, and help you grow your business. The cannabis industry is no different. In fact, with stock, processing machinery, growing facilities, and more to invest in, cannabis is one of the more capital-intensive industries. That's why you need access to reliable and reasonable cannabis business loans.
Little surprise that so many want to open cannabis-related enterprises. The marijuana industry has seen a meteoric rise, supporting over 428,059 legal cannabis jobs in 2022. Moreover, Americans spent nearly $25 billion on cannabis products in 2021. With ever more states supporting legalization, profits are set to go up and up and up – a figure which is expected to keep rising into the future.
However, acquiring capital in the form of cannabis business loans is often harder than expected. Because of the disparity between cannabis's legal status at the Federal and State-level, many financial institutions are penalized by Federal banking regulators for their association with cannabis-related businesses.
Apply for a cannabis banking account or cannabis business loan with Safe Harbor Financial!
In this article, you'll learn how to access cannabis business loans, as well as explore other potential funding models.
What are cannabis business loans?
Cannabis business loans are precisely what they sound like – a loan from a trusted financial institution to help grow your business. There are some key differences from standard business loans. In particular, cannabis business loans often deviate from traditional strict, rigid underwriting practices. To put it in layman's terms – cannabis business loans are often offered without lending restrictions concerning the money's use.
So, you can use a cannabis business loan for all manner of purposes. However, most commonly, cannabis-related businesses use the money for:
- Working capital
- Cannabis equipment financing
- Business expansion
- Biotechnology
- Cultivation, growing and farming
- Product stock
- Product expansion
What are the benefits of cannabis business loans?
Whether you need working capital to expand the business or want to upgrade to bigger premises, money is critical. Without loans, you are restricted solely by the money you can accumulate through revenue. In many businesses, that can strangle a business's potential before it's even got started.
Almost all cannabis-related businesses can benefit from business loans – especially as the market undergoes rapid growth. Capitalizing on this growth means investment.
For growers, it's a chance to expand their production and trial the creation of new cannabis clones. For sellers and dispensaries, it can mean onboarding more staff, increasing the manufacturing capacity (e.g., edibles production), or even just opening a dispensary.
In short, without business loans, cannabis isn't a viable economic prospect.
How to get approved for a cannabis business loan
When first developed, cannabis business loans were restricted to a few lenders. Since then, they've expanded, becoming increasingly available throughout the country.
Applying for a cannabis business loan means first finding a financial institution offering the service. Try credit unions as well as banks – often it’s the smaller organizations doing the lending, as big banks avoid engaging with cannabis-related businesses.
If you find a cannabis-friendly bank or credit union, you should be completely honest about your intent. Maintaining transparent and open communication can ensure the loan is processed more quickly and prevents any unwanted visitors from the federal government.
To apply for the cannabis business loan, you will need the following documentation:
- Business license
- Minimum business history of 6 months
- Legal paperwork for the business and business owner
- Personal Credit History. If your credit score is below 680 to 700, then you're likely to be rejected. Nevertheless, any amount of business credit will aid your application, even if not essential.
- Short description of the use of funds.
In addition, providing copies of your marijuana license, sales records, and inventory logs can help your case. Any and all information should be ready for inspection.
If a financial institution does not ask for this information, consider it a red flag.
Here at Safe House Financial, our Loan Program is primarily based around commercial property. We provide loans for:
- Purchase a commercial property (for manufacturing, retail and/or distribution)
- Refinance an existing commercial real estate loan
- Cash-out on an existing commercial property
- Mortgage for cannabis business owners
We're one of the few financial institutions providing loans to the cannabis industry. Clients need to have been with Safe Harbor for at least six months to apply for a loan.
Alternative funding options
Cannabis business loans aren't the only way to secure funding for your business. If you cannot apply for a loan or are rejected, there are alternate funding options:
Here are some potential sources:
- Investors. Plenty of wealthy investors are looking at the cannabis industry with eager eyes. After all, billions of dollars are being made every year. Approaching venture capitalists and other investors can give your business the cash injection it needs.
- Crowdfunding. If you've got an innovative cannabis product, you can turn to the public to finance your needs. Offering free products, merch, and services to garner support doesn't hurt either.
- Personal loans. So long as your credit history is solid, you can indirectly finance your business. Just be honest about the purpose of the loan.
- Equity. Private equity firms provide short-term, high-interest loans to get a stake in a startup. Meanwhile, home equity firms give a line of credit equal to the value of your home.
Cannabis business loans | Going forwards
Cannabis banking reform is on the way. The SAFE Banking Act is currently passing through the House and Senate. It aims to prevent Federal banking regulators from penalizing financial institutions associated with cannabis-related businesses.
If passed, it will open up cannabis business loans and, hopefully, continue to grow the market. Watch this space.