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.
If you're an 18-year old, newly minted adult with dreams of a cannabis business, you're probably going to be fighting 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.
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:
All of these things go into a successful business and proving you've considered them makes you an attractive client.
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.
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.
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.
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.
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