You’ve decided to enter the cannabis industry. Congratulations! There has been a rapid growth in the cannabis industry in the United States. But as with any new business venture, starting a cannabis business can be expensive.
One way to finance your cannabis business is to take out a loan. But because cannabis is still illegal at the federal level, traditional banks are hesitant to lend money to cannabis businesses.
That’s why many cannabis entrepreneurs turn to alternative lenders for financing. Here’s what you need to know about getting a cannabis loan.
What Is a Cannabis Loan?
A cannabis loan is a loan that’s specifically for cannabis businesses. Because cannabis is still illegal at the federal level, traditional banks are unwilling to lend money to cannabis businesses.
That’s where alternative lenders come in. Alternative lenders are companies that provide financing to businesses that traditional banks won’t lend to.
There are a few different types of cannabis loans. The most common are merchant cash advances, business lines of credit, and term loans.
Merchant cash advances are loans that are repaid with a percentage of your daily credit card sales. Business lines of credit are like credit cards for businesses. You’re approved for a certain amount of credit and you can borrow money as you need it, up to your credit limit. Term loans are traditional loans that are repaid with fixed monthly payments.
How to Qualify for a Cannabis Loan
Each lender has their own qualifications for a cannabis loan, but there are a few general qualifications that most lenders will look for.
A minimum of six months in business is required. This is to show that your business is stable and has a history of making money.
Second, you need to have a minimum monthly revenue of $10,000. This is to show that your business is bringing in enough money to make loan payments.
Third, you need to have a personal credit score of 600 or higher. This is to show that you’re a responsible borrower.
Fourth, you need to have collateral. This is something of value that you can use to secure the loan. For example, you might use your home or your business equipment as collateral.
How to Apply for a Cannabis Loan
Applying for a cannabis loan is similar to applying for any other type of loan. You’ll need to fill out an application and provide some financial information about your business.
You can apply for a cannabis loan online or in person. Many lenders have both online and in-person application options.
If you’re applying online, you’ll need to provide some basic information about your business, such as your business name, contact information, and the amount of money you need to borrow.
You’ll also need to provide some financial information, such as your revenue, expenses, and profit. This information will help the lender determine if you’re a good candidate for a loan.
If you’re applying in person, you’ll need to bring some additional documentation, such as your business license and tax returns.