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Questions to Ask Before Applying for a Cannabis Business Loan

Questions to Ask Before Applying for a Cannabis Business Loan

Securing financing for a small business can be tricky if you go in unprepared. The most critical thing you can do is go into the meeting prepared with all of your business plans laid out in clean, simple steps. Before that, however, you need to ask yourself a few incredibly important questions to ensure that you're ready and able to secure cannabis financing.

Lenders want to invest in people who have sound business plans, collateral, and credit history to prove that they're responsible. If a lender doesn't think you're a good fit to run a profitable business, they'll pass on financing your company. Before you set foot into a lender's office, ask yourself these five questions.

1. How is my credit?

If you're an 18-year old, newly minted adult with dreams of a cannabis business, you're probably going to be business financingfighting an uphill battle. Lenders want at least a 5-year credit history, and you build credit by renting, paying utilities, having credit cards, and paying these bills on time. If your credit is bad—or just too new—most lenders will not consider giving you any type of financing.

Consider improving your credit by lowering your debt-to-income ratio and getting your accounts under 20% usage, or waiting until your credit history is a bit older.

2. Do I have a quality business plan?

A lender wants to see what your business is and how it makes money, where you're going to place it, how you're distributing, and about a million other variables. If you go into their office with a single piece of looseleaf paper that says "I want to sell cannabis products", you're going to get denied.

A solid business plan will demonstrate:

  • Exactly how you'll be profiting - whether you're growing, manufacturing, or distributing cannabis products
  • What your payroll and staff looks like
  • Where you'll be located and how much financing is necessary for that. It's also nice to include comparable properties so you can prove you did your homework
  • How much you expect to earn your first year
  • Any marketing or advertising you have or expect to do

All of these things go into a successful business and proving you've considered them makes you an attractive client.

cannabis business loan 3. How much funding do I need?

Have you considered all possible sources of cost? How much will your payroll be each week, and how many people do you actually need to hire? Do you need work vehicles and equipment, certifications, food licenses and so forth? You need to fully consider how much money this will cost by looking at every possible angle and seeing just what your business needs to run effectively. This will also keep you from being surprised after you get a loan and realize that you needed more cash than you asked for initially.

4. What's my long term business plan?

Having a business strategy and good credit are only part of the battle—you want to demonstrate where you see yourself in 5 years. Will you expand, or are you a one-shop kind of businessperson? Are you looking to start by growing and then move into manufacturing, and if so, is your location big enough? Consider these angles as well before you speak with a lender.

5. Do I need a cosigner?

If you don't have a lot of credit history, income, or collateral, a cosigner might be your only option. Someone who cosigns your loan will be responsible for the debt if you default, so make sure it's someone you can trust and that trusts you. It's critical that your cosigner has good credit and a great debt-to-income ratio as well.

Don't go into your lender without scrutinizing your plans first

With a sound business plan and an understanding of your credit situation, you can confidently present your request to a lender for a cannabis business loan with a great chance to succeed. Cannabusiness is booming, and there's never been a better time to secure your financing and start your business.

 

You May Also Like:

5 Tips to Getting Approved For Cannabis Financing

5 Reasons I Would Get Denied For a Cannabis Business Loan

Tips for Building Credit to Get a Cannabis Business Loan



Posted by Canna Business Team


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In an industry that is constantly evolving, Canna Business Financing provides business owners with a reliable source to gather the most up-to-date information. From resources to fund the growth of your business to insights on best practices to scale, look no further!

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