Cannabis financing has exploded as more states legalize recreational and medical access, and there's never been a better time to investigate your options in cannabusiness. Like all types of financing, you'll be presented with a lot of industry terms, and having some familiarity with them will help you keep your head above water as you navigate the world of cannabis finance. Securing financing for a cannabis business used to be a hassle, but as more banks and financial institutions warm up to cannabis as a profitable investment, you'll find your options are broad.
With that said, you need to get your information together and present a good case for why the lender should finance your business, and having a working knowledge of common terminology can help you snag critical financing. Let's take a look at some of the most widely used cannabis financing terms, and what they mean for you and your business.
These terms will help you build a better understanding of which loans are out there for your business:
These loans are expressly used to purchase equipment and vehicles needed to process and deliver CBD goods, and funding usually is around 80-100% of the total cost. These are great loans that are easy to qualify for because they're just like a car loan. The downside is that if you can't pay, the lender gets the equipment or vehicles, so only use this type of loan if you can keep up monthly payments.
What makes cannabis real estate loans different from other real estate loans or mortgages is largely due to the fact that most areas where cannabis is legal have certain areas designated for cannabusiness. These loans are competitive and are earmarked specifically for manufacture, growing and/or distribution of cannabis products.
These are loans designed to help you financially while you establish your business, and they're very common in the restaurant and retail industries. Sometimes while a business builds up its client base and reputation, there simply isn't enough revenue to sustain, and that's where this type of short-term loan comes into play.
These terms are foundational when it comes to understanding the types of financing your business requires:
Anything you have that holds a substantial value that you put against a loan is called collateral. The purpose is to strengthen the lender's faith that you're not a bad investment, so when you apply for a loan if your credit isn't great, collateral can help you push the lender's decision in your favor. In the event of a default, they assume ownership of your collateral.
Something you should have before you set foot in a lender's office, a business plan outlines your expenses, your strategy, marketing, how you expect to make money, and how much you expect to make. This shows the lender you will be profitable, which demonstrates that they will get their money back. It helps you succeed in securing financing.
This is the money you have to finance day-to-day operations, for things like payroll, expenses, rent, and utilities.
There are three bureaus that monitor how much credit you have out, what your income is like, and how on-time you are with your bills. Altogether, this gives lenders your complete credit history and tells them whether you're a safe bet to give money to.
The most important thing you can do before meeting with your lender is to make sure your business plan is as accurate as possible. You want to wow the lender with your strategy and potential for success, and having collateral isn't a bad idea, either. If all else fails, bring in a cosigner to help you get to the level you need to be to secure financing and make your dreams come true.
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