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5 Reasons I Would Get Denied For a Cannabis Business Loan

5 Reasons I Would Get Denied For a Cannabis Business Loan

The cannabis business has increasingly favorable views across the country as more states legalize it for recreational and medical use. The barriers that stood in the way of a cannabis startup even just a few years ago have largely melted away as fewer banks are afraid of federal repercussions for lending to a cannabis business.

That doesn't mean that your application for a cannabis business loan is a slam dunk, however. Just like every other type of loan transaction, you need to be prepared and have your financials in line to give yourself the best chance at securing financing. Let's look at the top 5 reasons you could get denied for a cannabis business loan.

1. Bad credit

Every financial transaction you make that uses traceable means—credit cards, debit cards, utilities, and so on—gets aggregated into your credit history. This means if you're late on a loan payment, even once, that goes on a permanent record of your financial worthiness. Enough late payments, credit defaults, or too high of debt-to-credit ratio will negatively impact your credit score and make you a risky prospect.

Avoid trying to take out too many credit cards as each hard credit pull damages your credit history as well. Too many credit cards, especially carrying high balances, will also impact your credit negatively. Just paying off enough debt to lower your credit usage on each account to under 20% will dramatically increase your credit score, so work on that first before you apply for a loan.

2. Credit history is too fresh

It takes several years of paying utilities, using a credit card, and renting property to establish credit history that acannabis business loan lender will consider. If you're young with little credit history, you might need to look at alternatives to traditional lending to get money for your cannabis startup.

3. Too much debt

This goes along with bad credit, but even if you make your payments on time, too much floating debt can be a red flag for a lender. Some debt—called secured debt, like a mortgage—is actually good. Student loans, personal loans and credit cards are what will make your bank shy away from financing your business, so keep those amounts in check.

4. No clear business plan 

If you go to a lender with a fledgling business and you can't show a hint of profitability, they're going to deny you. The same thing will happen if you go to a lender with a weak business plan and no clear plan in place. 

If you've already started a business and need money to expand, you need to prove that it's on the upward trajectory—bring bank statements, ledgers, and anything else that shows debits versus credits, and that you are a sound business owner. Likewise, if you've not actually opened a business yet, have all of your plans laid out clearly. Show where your supply will come from and your anticipated costs, how you'll ship product and market it, and anything else that can prove you know what you're doing. This will go a long way to helping you secure financing.

5. Not enough collateral

If you have a moderate or weak credit history, you might be able to secure a loan, but it helps to have collateral. The easiest way to demonstrate collateral is to own other property, like a home or another business, but just showing a constant balance in a savings account is another option. The bank wants to know that you're responsible with money and that, if you stop paying, they can get something from you to pay for their investment.

Another way to circumvent this problem is to get a cosigner with a longer, better credit history and established collateral. 

Get Pre-Approved Quickly 

At Cannabusiness Financing we can help you secure the loans you need for your growing cannabis business. Send us a message so that we can assist you in getting started. 

 

You May Also Like:

5 Tips to Getting Approved For Cannabis Financing

Tips for Building Credit to Get a Cannabis Business Loan

Why Credit Is Important

How to Qualify for a Term 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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