If you run a cannabis business, you probably already know how difficult it is to navigate legal regulations, especially with regard to licenses and permits, purchasing real estate, and of course, finding funding.
In 2018 the United States Congress passed the Farm Bill that legalized the cultivation of cannabis on American soil. On top of that, many state governments are legalizing the sale of cannabis goods whether for recreational and medicinal use. These two changes in legislation have opened the door for an entirely new industry and new business opportunities.
However, due to the unique regulatory and banking environment that surrounds the newly-established cannabis industry, many business owners face unique needs when it comes to financing. At L3 Funding, we provide cannabis business loans to directly support these businesses’ specific needs and, ultimately, their success.
We offer equipment financing options to help your business expand. Feel confident knowing you may obtain the capital investments necessary to help your business successfully grow.
Cannabis is a plant or crop with distinct psychoactive and therapeutic properties. It is often referred to as marijuana, pot, or weed. Scientifically it is identified as Cannabis sativa, Cannabis indica, and Cannabis ruderalis.
Cannabis contains great amounts of tetrahydrocannabinol (THC), a natural psychoactive chemical compound. THC is slightly hallucinogenic. But it also creates a sense of euphoria and relaxation greatly enjoyed by recreational users.
The other active ingredient in cannabis is Cannabidiol (CBD). Unlike THC, CBD is non-toxic and non-euphoric. This chemical has high claims of therapeutic and wellness properties. Both THC and CBD are lauded for their mild effects, as compared with harder street drugs and alcohol.
Most cannabis products contain a mixture of THC or CBD. Psychoactive effects are less pronounced in CBD products as opposed to THC products. Although, no matter the chemical composition, cannabis is the base for many other products and businesses. Whether for recreational or medicinal purposes, business owners are capitalizing on this crop, experiencing great expansion and success.
For legal reasons, commercial bankers and the SBA do not underwrite “weed loans.” Business credit cards that are backed by these major banks are difficult to obtain as well.
Therefore, smaller, private lenders are available alternatives. However, stricter qualifications may be put in place to offset loan risk. This includes securing the loan with collateral or mandating a cosigner. They may also require borrowers to undergo licensing and background checks prior to loan approval or funding.
Seeking funding for your cannabis business may seem difficult, but, it is not impossible. By overcoming these obstacles, your business is more than likely to receive financial backing that may lead to future success.
Commercial banks are reluctant to underwrite cannabis-related financing. Since selling cannabis is federally illegal, loans can not be insured by the FDIC. While cannabis financing is more difficult than most traditional commercial lending, there are still funding options available to entrepreneurs.
There are a few private companies that underwrite marijuana business startup loans. But, these lenders have strict requirements due to heightened legal risks. Plus, cannabis business funding varies state by state. Some states have legalized the sale of cannabis. Others only permit the drug for medical purposes. Because of this, each state has its own guidelines and requirements for commercialization. Therefore, seek funding in the state where your business operates to not only gain capital but to also abide by the law.
What typically remains standard are the qualifications for a business loan. Borrowers must have impeccable credit records and a well-crafted business presentation to begin conversations with these lender firms. Marijuana equipment financing is a common type of business loan. It follows the same practices as more conventional business equipment financing. Capital gained from these loans should specifically be used to finance the machinery and equipment involved in the business’s operations.
Cannabis equipment leasing is a viable financing option as well. This follows similar rent-to-buy terms and agreements you will find in other industries except, here you will lease cannabis equipment, not vehicles or homes.
To apply for a cannabis business loan, you will need to provide the same documentation needed for a traditional business loan, in addition to:
A Business Plan and Project Plan: You will need to present a professional, polished business plan to your desired lenders. It should thoroughly detail the scope of your business. Address your business’s operations, market analysis, legal environment, and any additional information that will convince lenders to invest.
Fully Disclosed Financials: All cannabis business owners must disclose financial projections. For startups, share personal financial information, such as past credit history, investments, and debts, of all those involved in your venture. Ideally, they should each have a FICO score of at least 700.
State Licenses and Background Checks: Before applying for funding, review state guidelines. Proactively seek state licenses and certifications. Also, present your lender with a recent background check from the state you plan on operating your business. This creates confidence and reduces perceived risk.
The cannabis sector has created great opportunities for entrepreneurs. However, these opportunities can come with funding limitations. Overcome each hurdle with the assistance of L3 Funding. We specialize in successfully matching loans to businesses of all shapes and sizes, including those within the cannabis industry.
For any questions regarding funding guidelines, loan options, or getting cannabis project financing, please apply online today!