Cannabis Business Loans

What are common types of cannabis loans?

• Business term loans: this type of loan is the most common, where you apply for a lump sum amount that will be paid back, plus interest, over the following weeks, months, or years, depending on the term. Most of these loans come with an interest rate of 8-25%.
• Commercial real estate loans: this type of loan is usually a mortgage, secured against real estate you want to buy or improve.
• Equipment loan: an equipment loan allows you to borrow money to buy specific pieces of equipment, which secures the loan (like a car loan). This usually makes these loans easier to get with better rates.
• Working capital loan: a working capital loan is one that’s designed to help boost your business’s cash so you can better manage your day-to-day finances, and usually comes in the form of a term loan.
• Merchant cash advance: a merchant cash advance is where your payment processor offers you a lump sum loan which is then paid back through the payments you process online or in person. They automatically take an agreed percentage of each payment to pay back the loan.
• Peer-to-peer lending: This is where you use a platform much like a crowdfunding platform to raise funds toward your goals, the difference being that instead of raising money from your customers and supporters, you’re essentially funding a loan from small investors. You’ll then pay the loan back with interest, just like a traditional loan.

What are the pros and cons of cannabis loans?

PROS

• Boost your working capital
• Have funds for business expansion
• Diversify into a new market
• Take advantage of opportunities
• Keep a constant supply of inventory
• Most have an online application
• Most specialize in cannabis businesses
• Some loans cater to startups

CONS

• You may find rates are higher than some loans available to other businesses
• Some lenders aren’t as well-known as those for other businesses, so you’ll need to do your research on who is reputable
• You may be required to make a personal guarantee or put up assets as collateral
• You may tie yourself into a loan that takes a long time to pay back, limiting your options for some time

What does it cost to get a cannabis business loan?

The costs involved with a cannabis business loan are:

• The interest rate: all cannabis business loans and alternative funding will have some sort of an interest rate or cost for borrowing. This is the biggest factor in what the loan will cost you overall. It’s always important to compare loans to get the lowest rate to maximize your affordability.
• Down payments: some loans may require you to pay a down payment on your loan, which is generally 5-20% of the total of the loan. This can make some loans less affordable, though a down payment will usually lower the interest rate.
• Set up and closing fees: loans in the form of a line of credit or merchant cash advance may come with a set-up fee or closing fee, so make sure you’re aware of what these are before you agree to your loan so you know how much it will add to the cost of the overall loan.
• Early repayment fees: another fee you should be on the lookout for is early repayment fees. Try to avoid getting a loan that penalizes you for paying off the loan early, so you can choose how and when you pay it off.
• Collateral/personal guarantees: while this isn’t a cost per se, it’s worth mentioning that some loans may require you to put up assets as collateral, which can be seized by the loan company if you default on your loan payments. A personal guarantee may also be required, which would allow the company to pursue you legally (not just your business) to recoup the funds if you default.

Are loans for cannabis-based businesses safe?

Yes, though you do need to do your research and find reputable lenders. Some lenders are not well-known, and so you need to make sure you read the fine print in their terms so you won’t get a nasty surprise. When possible, work with lenders you’ve heard of or are recommended by others in your industry.

Are there alternatives to cannabis business loans?

There are some alternative forms of borrowing that may better suit your needs:

• Line of credit: A line of credit is a popular choice for cannabis businesses, and it’s where you’re given access to a maximum amount of credit which you can use as and when you need. In most cases, these are revolving, which means you can use the credit again when you’ve paid it back (like a credit card).
• Private equity funding: this is where you seek funding from private individuals, often through a private equity firm. If you have big plans for the future, this may be a good option for you. Learn more about it here.
• Crowdfunding: crowdfunding has become a popular method to raise funds, and may be the best option if you have a customer base eager to get their hands on your next product. Most of the mainstream crowdfunding platforms have started approving cannabis companies, but there are also some specialist marijuana business crowdfunding platforms such as CannaFundr and Fundanna.
• Venture capital and angel investors: with cannabis becoming legal in more states and countries across the world, venture capital firms and angel investors are keen to invest in promising cannabis businesses. While this can be a great way to get more cash for your business and often get advice from more experienced business people, you will need to sell a part of your business to the firm or investor.
• Personal loans: If you’re still in the early stages of your business and have a part or full-time job, you may find that a personal loan will be the best way to secure funding. If you have a good income and a high credit score, you may find this an affordable way to borrow.

Marijuana Business Loan Calculator

Will my state make any difference to where I can get a marijuana business loan?

It might – because the legalities surrounding cannabis are still relatively up in the air on a federal level, you may find that a lender may not lend to businesses in your state yet. If that’s the case, it’s worth looking to local lenders within your state as they will likely be looking for ways to work with businesses like yours, especially if you’re in one of the states where cannabis is legal for any use.

Can a cannabis business loan also be used for a CBD business?

Yes, most cannabis business loans can also be used by CBD businesses, but check with the lender before you apply.

What are the best cannabis business loans?

We’ve rounded up many of the best cannabis business loans available within our comparison tables, so make sure you start there. Due to the more complicated nature of cannabis loans (due to the differences in law in each state), make sure you do your research and make sure funding is available to you. When you find the loans that are, it’s time to compare.

Apply for a marijuana business loan and compare rates

It’s essential to compare rates so you can get the lowest interest rate possible. This will make your monthly payments more affordable and lower the overall cost of the loan. When you find one that applies to you, move forward with the application process. Many providers have an online application that makes it straightforward to apply, and once approved, you’ll often have the funds in your account within 48 hours.