Cannabis financing is a critical subject due to the regulatory standards surrounding the cannabis plant itself. Some cannabis companies have a hard time getting proper financing for their business operations to ensure they scale properly.
Knowing how to find the right cannabis loans and financing opportunities requires any business in the industry to follow strict protocols. Seeking professional accountants can minimize the headache of finding good financial resources to grow your business.
If you’re a cannabis business wanting to get financing there are some factors you need to consider that can make it easier for you to get the financial support you need.
With the regulatory landscape changing consistently, knowing the correct places to find loans, credit, and or funding through proper compliance protocols can save you time from researching it yourself.
This article explores how to get proper financing for your cannabis business, the application process for financial loans, and funding, and when to hire an accountant to make the right financial decisions.
Financial Status In The Cannabis Industry For Companies
Currently, cannabis companies aren’t allowed to access services from banks including credit cards, and bank loans.
For those of you who have been operating a cannabis business for a while, you may know that this isn’t something new.
However, some private lenders and non-banks can provide the financial access you need. These business lenders and non-banks only existed since their states legalized cannabis for recreational and medical use.
Even so, the industry keeps a tight regulatory hand on businesses offering loan options to cannabis companies.
An oncoming bill may come to pass that reschedules cannabis from Schedule I controlled substance.
The rescheduling was set off by the U.S. Department of Health and Human Services (HHS) on August 30, 2023, which recommended moving cannabis to Schedule III.
The bill, if set in motion, would allow cannabis companies to conduct business with traditional banks and lenders that aren’t currently allowed to work with cannabis companies.
Cannabis being rescheduled can hold protections for financial institutions, along with a potential pending bill, the Safe Banking Act 2023, making it move forward.
There’s not much about whether the regulators in power will accept either bills or recommendations for cannabis.
Both can allow cannabis companies to work with financial institutions with security. This can provide loans, credit cards, and other financial opportunities if these bills are set in motion.
Businesses in the industry will have to plan and wait or find alternative financial banking solutions.
How Cannabis Companies Get Financing
Cannabis companies must rely on private and alternative lenders and funding resources to receive financing properly. These lenders know the layouts of the regulatory-compliant landscape and can offer opportunities for businesses.
Some companies in the industry also seek out angel investors to supplement their financing and utilize private equity funds.
It’s typical for these businesses to go through a series of vetting requirements to get financial support through documentation and application processes.
If you’re looking to find proper financing without jumping through hurdles, consider working with an accountant.
Best Cannabis Financing Options
Loans/Lenders
Getting loans from private lenders can give your business the finances it needs to stay in operation over a longer duration.
They qualify your business based on these criteria to ensure you get the best financial solution possible.
Private lenders follow different guidelines and offer cannabis businesses distinct loan opportunities.
Here are some potential private lenders to consider:
- Socotra Capital: Provides financial solutions for investment properties.
- Hasanov Capital: Provides an array of cannabis loans from business to inventory financing loans.
- Fincann: Offers all types of cannabis loans from real estate to equipment.
- United Capital Source business term loans: Offers business loans for dispensaries.
- Cannabis Business Resource: Provides financing for real estate, equipment, dispensary loans, and others.
- Finance Factory Loans: The company offers personal loans, business loans, and more.
- Diamond Business Loans: Offer real estate loans and possible funding solutions.
It’s important to keep in mind there are different cannabis loan rates from private lenders before applying for them. Identifying the best rates possible for your business can optimize your financial projections and goals.
There are also many types of cannabis loans that lenders offer to businesses in the cannabis industry.
These loan types include the following:
- Inventory Financing
- Equipment Financing
- Cannabis Acquisition Loans
- Cannabis Real Estate Financing
- Dispensary Loans
The loans outlined above are a few you can apply for through a cohesive application process. Some may be suited for your business operation whereas others may not fit it accurately. It’s essential to know the type of loan you’re seeking to get loan approval.
Funding Opportunities
Along with loan options, there are also funding opportunities for cannabis companies looking to increase their finances. If you’re more interested in funding opportunities, some companies offer it to businesses in the cannabis industry.
Here are some companies offering funding to cannabis companies:
- Fundcanna: Provides cannabis companies with several financing solutions.
- Diamond Business: They also offer funding opportunities for cannabis companies.
These are a few of the companies offering funding resources for businesses in the cannabis industry. Consider looking into them to explore your options.
Other Financing Alternatives
For those wanting more creative financial solutions, there are other financial alternatives your business can consider.
These include the following:
- Home equity lines of credit (HELOCs)
- Lines of Credit
- Supplier Cash Advances
- Equipment Financing and Leases
- Investments From Accredited Investors
- Crowdfunding
- Investment From Friends and Family
The financing alternatives may work with your business based on the goals or objectives and financial structure.
How To Apply For Financing
Many private lenders require you to go through a qualification process before providing you with a loan.
1. Input Your Product
During any application loan process, they may ask what product you need the loan for your business. Also, asks you to pick the best financing option for your business. Knowing the product you want to get a loan for can also help you understand the loan type your business needs.
2. Documentation
All private lenders require documentation during the application process. It may be one of the first requests they need before you fill out their loan application.
These include the following:
- Completed Application
- Driver’s License
- Business Bank Statements (Last 6 Months)
- Purchase Orders (if securing PO’s)
- Executive Summary Use of Funds & Loan Type Requested
- Inventory List (if securing inventory)
- Cannabis Deck & Debt Schedule
- Account Receivables Report (if securing AR), YTD P& L, and Balance sheet
- Five Year Proforma P&L Annual only in Excel Format.
3. Complete Application
Some lenders may have a separate application for you to fill out after submitting documentation and other necessary items. They contemplate your qualifications and send approval by phone or email to your business.
These are a few steps you should take in filling out an application for your business loan. It’s also important to remember that different lenders can require distinct application processes to ensure your business is matched properly.
What You Need To Know Before Choosing A Loan And Proper Funding
Before you choose a loan, funding resource, and or financial alternative, you need to know the ideal criteria for finding the best financial company or resource for your business.
Make Sure The Company Is Qualified and Reputable
It’s essential to know the financial resource you choose is qualified and credible. By researching their credentials and reviewing testimonials of their past clients, you can get a good grasp of the financial company’s credibility.
If seeking finance from family members, ensure you can trust them by at their financial status.
Know The Interest Rates
You should know the interest rates of the loans you’re applying for. The best rate can start your business off on the right foot.
Know The Fees
Understand the fees associated with the loan. Reputable companies are transparent about origination fees, prepayment penalties, and any other charges. Avoid lenders with excessive or hidden fees.
Understand The Terms and Conditions
Read and understand the terms and conditions of the loan agreement. Pay attention to repayment terms, late payment policies, and any clauses that may impact your borrowing experience.
Ensure Consistent Quality Customer Service
Assess the quality of customer service. A responsive and helpful customer support team is essential for addressing any concerns or issues throughout the loan process.
Choose A Company With Loan Options
Choose a company that offers a variety of loan options to cater to different needs. Whether you need a personal loan, business loan, or mortgage, having diverse options allows you to find a loan that suits your requirements.
Ensure Transparency
Look for transparency in communication. The company should provide clear information about loan terms, conditions, and any potential risks. Avoid lenders that are not transparent about their processes.
Ensure Efficient Approval Process
Consider the efficiency of the approval process. A streamlined and quick approval process can be beneficial, especially if you need funds promptly. However, ensure that the company maintains thorough due diligence.
Make Sure They Have Security and Privacy In Place
Ensure that the company follows strict security and privacy standards to protect your personal and financial information. Look for secure websites, data encryption, and a clear privacy policy.
Adheres To Regulatory Compliance
Verify that the company is licensed and complies with relevant financial regulations. Compliance with industry standards is a sign of a trustworthy lender.
Offers Flexibility
Choose a company that offers flexibility in repayment options. Some lenders provide options for early repayment without penalties or may offer flexible terms to accommodate changes in your financial situation.
Cohesive Accessibility
Consider the accessibility of the company’s services. Online platforms, user-friendly interfaces, and convenient communication channels contribute to a positive borrowing experience.
Optimizing Your Cannabis Financing Loan and Funding Opportunities
When optimizing your cannabis financing, your business needs to navigate the unique challenges and opportunities in the cannabis industry.
Here are 8 strategies to optimize your cannabis financing, including loan and funding opportunities:
1. Understand The Regulatory Landscape
Given the complex and evolving regulatory environment for cannabis, understand the legal requirements in your jurisdiction. Compliance with local and national regulations is crucial for securing financing.
2. Specialized Cannabis Lenders
Look for financial institutions and lenders that specialize in cannabis financing. These entities are more likely to understand the industry’s nuances and may offer tailored financial solutions.
3. Build a Strong Business Plan
Develop a comprehensive business plan that outlines your cannabis business’s goals, financial projections, and strategies for navigating regulatory challenges. A solid business plan can instill confidence in lenders.
4. Diversify Funding Sources
Consider diversifying your funding sources. Explore a mix of traditional loans, private investors, and alternative financing options to reduce reliance on a single channel.
5. Collateral and Asset Valuation
Clearly understand the value of your cannabis-related assets. Some lenders may be more willing to provide financing if you can offer valuable collateral, such as real estate or equipment.
6. Financial Transparency
Maintain financial transparency by providing accurate and detailed financial information to lenders that demonstrates your business’s stability and the potential for a return on investment.
7. Negotiate Favorable Terms
Negotiate terms that align with the unique aspects of the cannabis industry. This may include flexibility in repayment schedules, interest rates, and covenants that reflect the realities of the business.
8. Hire A Cannabis Accountant
Expert cannabis accountants can help you pick the best loan and financial opportunities for your cannabis business.
They can conduct the necessary work of evaluating your assets, finances, and ensure you choose a qualified loan or funding resource.
A cannabis accountant can help prepare comprehensive financial statements that provide a clear picture of your business’s financial health. Private lenders often require detailed financial information to assess creditworthiness.
They can also assist in developing accurate financial forecasts that align with your funding needs and business objectives. This can help you choose the right financial path for your business.
Lenders may request detailed financial information that cannabis accountants can provide to them after reviewing your business finances.
A cannabis accountant can support you in preparing the necessary documentation, ensuring that you present a complete and accurate financial picture to potential lenders.
Essentially, they help improve accounting for dispensaries along with other businesses in the cannabis industry.
Should You Hire Accounting Experts To Help You Acquire Cannabis Financing?
Cannabis financing can be hard to go through by yourself. Many financial resources and options may or may not work best for your business.
If seeking financial support from funding, loans, and other alternative financial resources were easy then there wouldn’t be a need for accountants.
There are many things your business can get prepared for by providing the correct documentation and optimizing your financial health to get financial approval. Also, preparing for the potential approval of the SAFE Banking Act and other regulations.
Working with an accountant makes it easy for you to make accurate decisions without going through all the financial data.
Accountants, like Green Space Accounting, can help your cannabis business even further after you receive financing by managing cash flow and putting your business in a better financial position.
