A cannabis business owner often needs money for a variety of things, including inventory. A cannabis loan is a form of inventory financing, a short-term loan with a revolving line of credit that dispensaries use to pay suppliers. The loan is collateralized by inventory, which can create additional stress for a startup business. Some lenders are specifically focused on the cannabis industry, including Bespoke Capital and Leaflink Financial. These companies offer cannabis business loans, as well as working capital lines of credit.
If your business is new, you may be able to find an existing lender who can help you obtain a cannabis business line of credit. A line of credit is similar to a credit card, and allows you to draw funds when you need them, while also requiring that you repay the funds with interest. This type of loan can help you bridge a cash flow gap during seasonal sales cycles or during unpredictable cash flow periods. To qualify for a line of credit, your dispensary must first find a legal space to lease. Additionally, local zoning laws may prevent marijuana dispensaries from being located in areas near schools, churches, or other public institutions.
Although cannabis business loans are becoming more difficult to find, more lenders are finding ways to provide cannabis business funding. Because cannabis businesses are still relatively new and the legality of cannabis is still up for debate, borrowers should be aware of the risks and rewards of the industry. However, with the right loan, cannabis businesses can expand without worrying about cash flow. With Upwise Capital financing, cannabis businesses can expand without worrying about cash flow constraints. This makes acquiring the capital necessary to build a stronger business easier.
Because marijuana is still illegal on a federal level, commercial banks are hesitant to provide cannabis loans. In addition, these loans cannot be insured by the FDIC. Because of these risks, marijuana financing is more difficult than most traditional commercial lending. Cannabis business financing varies by state. While some states have legalized recreational use, others have only legalized cannabis for medical purposes. In each state, the legalization process is different. This can complicate the process of finding cannabis business loans.
Regardless of where a marijuana business looks for financing, there are several things to look for in a cannabis loan. First, the lending documents should include more robust representations and broader audit rights. Second, lenders should also make sure the lending documents include cross-collateralization and traditional credit enhancements. Additionally, lenders should consider their CSA risk, as well as the risks of violating the Bank Secrecy Act. In addition, cannabis lenders should take steps to protect themselves from potential fraud by following the recommendations of their industry.
Although marijuana is still illegal federally, many states have legalized medical and recreational marijuana. As of the third quarter of 2019, there were 553 banks offering banking services to marijuana-related businesses. If you don’t want to fall victim to federal restrictions, look for alternative financing from a bank that does not charge any fees. There are also many options to consider with cannabis loans, and these options will allow you to access money quickly. They can even be provided in as little as two business days.