What You Need to Know About Dispensary Financing and Marijuana Industry

Ezra Cabrera

February 8, 2019
cbd business loans
Marijuana has been legalized in 33 states and its industry is booming. In fact, it’s projected that marijuana businesses will have a 241% increase in economic impact by 2021. As more and more entrepreneurs enter the cannabis market, the need for CBD business loans is increasing.

Securing short-term or long-term funding isn’t easy for any business. However, you can expect to face even more challenges when it comes to funding your marijuana business. Even though a number of states have moved forward to legalize it, marijuana is still illegal under federal law.  As a result, most lenders and banks don’t want to deal with the potential legal repercussions of working with marijuana-related businesses.

While traditional and bank loans are going to be difficult to obtain, alternative lenders have made it easier for cannabis businesses to secure funding. All they need is proof of a strong revenue stream and a high credit score. The rates and terms set forth by alternative lenders may not be as favorable as traditional loans, but the opportunity to qualify is much greater.

You should definitely note that some lenders may have certain restrictions when financing businesses in the cannabis industry. To avoid wasting time and effort, do your research and look for lenders who specifically work with cannabis dispensaries and other high-risk businesses.

Related: 5 Steps to Start an Online CBD Business

Best Types of CBD Business Loans for Marijuana Businesses

Every business needs additional funding to keep their business going. In CBD businesses, it’s even more vital. Start-up expenses could be high considering the many steps you have to go through to legalize your business. Aside from that, you only have to obtain products that pass the standards imposed by the state. In other words, you have to make sure that the goods you’re selling is top-notch.

Those are just the start of your expenses. There’s a lot more to come as you continue operating your business. For that reason, it’s extremely important to get financing as early as you can to prepare your business for further expenses. To kick-start your loan application process, here are some of the best types of business loans for marijuana businesses:

1. Alternative/Private Loans

Private, non-bank lenders are the most common financing option used for marijuana and cannabis businesses. To reiterate, it’s important to do your research and target the lenders that make the most sense for your specific business needs and goals as some may have restrictions. For example, some private lenders may not be comfortable providing financing for the planting and growing of marijuana but will lend money towards the production of related products like merchandise, edibles, concentrates, vapes, etc. Make sure to define how much funding you need and where/what it will be going towards.

2. Equipment Loan/Lease

Most often, equipment financing benefits cannabis growers who require expensive agriculture equipment to aid in planting and cultivating marijuana. Although you can finance this out of your pocket, it can create a huge cash flow gap that will threaten the stability of your business finances. Securing an equipment financing, on the other hand, gives you the chance to acquire the essential machinery you need without paying out of your own pocket.

What makes equipment financing ideal for CBD businesses is that it doesn’t require them to present collateral. The equipment bought with the financing will serve as the guarantee for the loan. This means that if you default, the banks or lenders can confiscate the asset and sell it to pay for the loan.

3. Merchant Cash Advance

A merchant cash advance is technically not a loan, but rather an advance payment against your business’ debit or credit card transactions. It is a type of short-term funding that’s perfect for bridging cash flow caps and adding extra working capital. In order to obtain a merchant cash advance, your business must have a strong bank statement revenue.

Related: 6 Effective Tips to Qualify for a Merchant Cash Advance

4. Bridge Loan

If you need to purchase land or real estate to expand your marijuana business, there are lenders who are willing to finance your business expansion. In addition to buying land, you can also use bridge loans to provide working capital, pay rent, utilities, inventory costs and other business expenses. You can also use it to apply for a larger and more comprehensive financing option.

Have You Found the Best CBD Business Loans for Your Growing CBD Business?

Are you looking for potential lenders to fund your marijuana business? Or have you found the one that best suits your needs? If not, then look no further. The CBD business loans presented above are just a few of the many you can apply for. There are some lenders out there that would be willing to work with you as long as you’re following the state’s rules about CBD businesses.

 

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

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