Finding cannabis dispensary loans are similar to any financial lending in the cannabis industry. It is not always an easy process with cannabis still being illegal at the federal level. While cannabis is now a significant market in many places in the US and Canada with people eager to get on board, the financing situations have not kept pace with the cannabis business. Opening a dispensary is profitable if done correctly and if it has a solid business plan. As a business owner, there are laws and rules to be followed and an overabundance of caution when it comes to financing this venture.
Funding a dispensary may be more difficult than most mainstream businesses but there are financing options.
Finding Funding
With many lenders trying to avoid legal issues by not lending to cannabis-based businesses, financing takes some creativity. As a traditional lender, banks are not going to be a major player right now with all the legalities and red tape putting the lending at high risk. Some will have dealings with dispensaries, but in general, a financial institution will not offer a small business loan, line of credit, credit card, or merchant account to a dispensary owner. So, if not banks, then what type of financing?
1. Equity Financing
This type of financing is when investors provide capital and in return receive part ownership in the marijuana dispensary. A business will get the money required but not have to make regular payments. However, the investor will now own some of the dispensaries. When the dispensary starts making a profit then the investor can take some of the profits unless the majority owner can pay them out. A business is also taking the chance with equity financing that the investor will want a say in how the dispensary is run. This risk goes both ways though as if the dispensary fails, the investor loses their money as well.
2. Alternative lenders
Some alternative lenders are willing to work with dispensaries. Their interest rates and overall terms are often not as good as the banks, but the financing is easier to get and can offer lines of credit or basic financing for business set up and purchases.
3. Cannabis Dispensary Loans that are short term
Short term cannabis dispensaries loans can help buy equipment, hire employees, or pay other start-up costs. Repayment terms can range from 12 months to up to 3 years. They also tend to have a factor rate rather than interest. This is a fee that is only applied one time and it is added to the overall cost of the loan rather than the usual compounding interest. The fee varies based on the amount, credit rating, and business plan. A short term loan program often offers money quickly and without hassle.
4. Lines of Credit
This is flexible financing. You do not just get a lump sum you get a credit limit and then just use what you need. You can draw amounts as required until you reach the top of the limit. The interest or fee is only charged on the amount a business draws. Not the full credit limit amount.
5. Crowdfunding
This is a method of raising money from a group of people/investors in exchange for company equity or other rewards. A business promotes its campaign online and then people donate so you can reach your fundraising goal. Businesses can do this in two ways. One is through equity crowdfunding where investors get equity in the business or non-equity crowdfunding where investors get a benefit of some kind. Both types usually have to pay a fee for the duration of the fundraising campaign, and it can take a long time to reach the goal.
6. Personal Cannabis Dispensary Loans
These are great if the owners have a good credit score and income that is steady. These loans can be a little tricky if asked what they are for as some lenders will not allow them to be used for dispensaries.
7. Outside investors
Cannabis dispensary loans can be obtained by looking for equity firms, venture capital, and angel investors who can all offer funds for equity in the dispensary.
8. Credit cards
While this is never the first choice when it comes to cannabis dispensary loans it can be used for expenses that are recurring along with emergency support or smaller expenses. Access to funds is immediate and easy but holding the debt for longer than a month is expensive due to high-interest rates.
Qualifying for Cannabis Dispensary Loans
Getting a cannabis dispensary loan usually requires the same things as for most other mainstream cannabis dispensary loans. Requirements will vary depending on the lender and the funding that is needed. Some lenders such as credit cards will need basic information such as names, revenue, and contact info. Others will need more.
If the lender is more than a basic one, then work through the details of applying first. Do some preparation. Figure out how much capital is needed and then what is affordable for the business for repayment. Check the credit score in case some work needs to be done to improve it. If improvement is not possible then be aware that fees and interest will be higher with poor credit.
Once the prep work has been done then decide where to find lenders. Make sure that requirements are clear, and the fine print has been read. If you have an accountant and/or lawyer have them go over the details as well. Have the following ready to present once a lender is going to be approached:
- Personal info including name, contact details, and social security number
- Business details including any applicable tax numbers
- Credit scores for business and personal
- Background check for people listed on the application
- Pertinent Licenses and permits
- Bank statements
- Business financials including profit and loss, income and balance sheet
- Complete business plan
Final Thoughts
Opening and running a cannabis dispensary is not a simple task and has many challenges. And while mainstream financing is hard to obtain, there are other options available. By researching and doing due diligence there is an opportunity to find lenders that are willing to work with a dispensary and support its goal of success.