With more and more states loosening up rules on marijuana, and some states legalizing cannabis for recreational use, the marijuana industry is booming. Entrepreneurs across the country are taking this opportunity to start their own marijuana business. But starting any business costs money, especially when there are overhead expenses, like costs for big equipment.
Small business owners, including owners of new marijuana businesses, have several financing options available that can limit the burden of startup costs. In this article, we are going to talk about several funding options and how they might be able to help you finance your marijuana business.
Because of the financing restrictions that marijuana business owners face, equipment financing is a great option to fund your cannabis business. Equipment financing refers to equipment leasing or equipment loans. Any type of business expense – from heavy machinery to office equipment – can be funded with equipment financing.
With an equipment loan, the lender pays for the outright cost of the equipment purchase, and you make payments to the lender. Equipment loans work generally like traditional loans, except the funds must be used on business equipment expenses. Business equipment can mean any kind of equipment that is essential to running your business.
That means an equipment loan can cover your costs for lighting equipment, growing equipment, security systems, growing products, display cases, vehicles and other necessary purchases.
With equipment leasing, you basically rent the equipment you need from a lender. You borrow the equipment and make payments either directly to the equipment company, or sometimes to a third-party financial institution. At the end of the lease, you can either end the terms and return the equipment, extend the terms and keep borrowing the equipment, or buy the equipment from the lender.
Equipment leasing is a great option for bigger purchases that are essential to running your marijuana business. Equipment that can be leased includes bigger lighting and grow equipment, vehicles, or other machinery required to run your marijuana business.
A business line of credit works pretty much like a credit card. When you set up a line of credit, you agree on a credit limit, interest rate, and length of terms. When you use money toward your line of credit, your available funds go down. When you pay back toward your debt, your available funds go back up.
There are generally no restrictions on purchases once you set up a business line of credit. Funds can be used for equipment, payroll, or any other day-to-day expense. However, usually a good credit history is needed, which might require a few years of business experience. Additionally, the types of lenders that offer business lines of credit might be more restrictive because of the federal regulations and laws regarding marijuana.
With the controversial marijuana laws at the federal level, many traditional financial institutions tend to stay away from funding marijuana businesses. This has made it hard for marijuana small business owners to obtain funding via traditional business loans.
However, some alternative lending groups do offer financing for marijuana businesses. Especially with more and more states legalizing cannabis for recreational use. Check with legal and financial experts in your area to find out what kinds of restrictions your local lenders abide by.
Another alternative for marijuana business owners is a personal loan. If you have good credit and want to start a marijuana business, you can take out a personal loan. Funds from a personal loan can be used to cover the startup costs for your marijuana business.
Equipment financing, business lines of credit, and business or personal loans are just a few options available for small business owners that want to start marijuana businesses. With more and more states legalizing marijuana, more lenders are considering offering funding for marijuana businesses. Check with you legal and financial professionals to find out what the best option is for you to start your marijuana business.
Jake is the Chief Marketing & Strategy Officer at SMB Compass. Jake is also the President of Reach Digital, an internet marketing company.