The growth, sale, and distribution of marijuana is a burgeoning industry, and many business owners are capitalizing on this opportunity. But if you want your business to expand, you’ll need an influx of working capital to help you hire new workers, develop new product lines, or make other investments. Unfortunately, cannabis financing isn’t as easy to come by as other types of business loans.
If you’re a cannabis business owner, this guide can help you gain access to the financing you need for your business to flourish.
How Do Cannabis Businesses Obtain Financing?
The profits of your cannabis business can be reinvested into your company, helping you make adjustments to your business model as you grow. But to make large-scale changes, you’ll need business financing to cover the cost of commercial real estate, inventory, equipment, payroll, or other essential needs. Consider the following best practices to help secure the cannabis loans you need to fund your business.
1. Update Your Business Plan
There’s a good chance you created a business plan when you first launched your company. But if you’re seeking new funds for your business, it may be time to revise and update that plan to reflect your new goals.
For example, you might update your business plan to include:
New product lines
Changes in your leadership structure
Revisions in your marketing strategy
Specific funding needs
Most cannabis lenders will want to evaluate your business plan before approving a loan. Having a revised business plan that reflects your future goals can demonstrate your strategy for the future and improve your chances of securing cannabis financing.
2. Find a Lender Who Offers Cannabis Financing
Despite the growing acceptance of the cannabis industry, most traditional banks and lending institutions do not offer loans to cannabis business owners. The U.S. Small Business Administration (SBA) does not offer loans to cannabis businesses either.
The good news is that you can choose from non-traditional lending options. Most lenders will expect to see your business plan, as well as the financial records of existing businesses. They’ll also perform a thorough credit check to determine your eligibility for financing. Gathering your financial documents together prior to meeting with your lender can streamline the process.
Even though cannabis lenders are hard to come by, comparing rates and terms from at least three lenders still makes sense to ensure you get the best possible deal.
3. Make a Plan to Repay the Loan
Your business plan should already include some basic revenue projections, but you’ll also need to think about the future to ensure that you’ll be able to repay the loan in addition to any interest.
It’s important to borrow only what you need; otherwise, you can find yourself saddled with an unmanageable amount of debt that can inflate your overhead costs and cripple your ability to expand.
4. Consider Alternative Funding Sources
Cannabis lenders aren’t the only way to fund your business. As an entrepreneur, you might also consider funding sources such as:
Social equity lending programs (reserved for disadvantaged entrepreneurs)
Building partnerships with angel investors
These sources vary when it comes to effectiveness, but they might be a good way to supplement the business financing you receive through your lender.
Advantages of Financing for Cannabis Businesses
Every entrepreneur understands that it takes money to make money. Cannabis financing can provide the working capital you’ll need to maintain and grow your business. Here are just a few of the advantages of pursuing financing for your cannabis business.
Fund New Needs
Cannabis business owners will regularly be on the lookout for ways to expand their business and pursue new revenue streams. Cannabis loans give you the working capital to accomplish such goals as:
Purchasing new inventory
Updating existing equipment
Obtaining new licenses
Developing new vendor partnerships
Hiring new employees
Focusing on these priorities can help you refine your business strategy and carry your cannabis business into the next phase of its operations.
Maintain Your Cash Flow
Cash flow refers to the money that moves into — and out of — your business at any given time. A business loan improves your cash flow in the short term, giving you access to the money you’ll need to cover your ongoing expenses, such as payroll and taxes.
Expand Your Business
How do you plan to grow your business? Business loans can be used to make capital improvements, hire new employees or invest in research and development to take your business to the next level. The funds give you a chance at greater profits and keep your business thriving for years to come.
Considerations with Cannabis Financing
As a business owner, you’ll have to consider a few factors when you obtain a loan. Here are some of the most important things to keep in mind.
Since cannabis loans can’t be obtained from a traditional lender, interest rates may not be as competitive as other lending options. This factor is why it’s important to compare interest rates between multiple lenders to secure the most affordable financing.
Business financing doesn’t always come in the form of a lump-sum loan. A business line of credit can give you access to funds up to a certain amount, which you can then pay off, much like a consumer credit card. This method can be a way to stay flexible if you’re unsure of your financial needs.
Penalties and Fees
Most lenders will charge a fee for late payments, but some will charge a fee if you attempt to pay your loan off before the expiration date. Others will charge an origination fee, which can drive up the final cost of the loan. Make sure to ask about these fees before you commit to a lender.
Tap into a Growing Industry
According to the U.S. Securities and Exchange Commission (SEC), cannabis business owners earned over $12 billion in revenue in 2019, a number expected to increase to $31.1 billion by 2024. Cannabis financing can help you gain traction in this lucrative industry and keep your company growing.
This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.
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