Business Loans
for Cannabis

If you’re already in business, it’s easier to borrow. You’ll have data from last year’s income and expenses. You can predict cash flows and will know, for example, if you need to borrow to install new grow lights or a security system. Past cash flow and customer behavior can also help you forecast how an expansion could impact your sales revenues.

Existing business owners, whether you’re a medical dispensary or a grow operation, have a financial history to include in a loan application. You could pledge assets as collateral, such as allowing the lender to file a lien against your greenhouse. Assuming you’re profitable, borrowing as an existing business owner is easier.

Even an unprofitable business can borrow if it has enough cash receipts and a business plan that clearly shows its path to profitability. Your best option is to find an alternative lender who understands your business.

Small business owners looking to start a new business will have different funding needs. You would have to locate a building, obtain the necessary permits, and acquire products. Some landlords don’t want a medical dispensary in their building, and you could face opposition from nearby residents.

It’s likely that you’ll need a significant sum to get started – you’ll pay an estimated $250,000 to $750,000 to open a new medical dispensary. Because of your funding needs, you should likely apply for a large business loan. A lender could ask you to pledge personal assets – such as investment or retirement accounts – to secure the loan.

The stage you’re at in the business cycle will often help you decide how much to borrow and which lenders to approach.

Opening a new medical dispensary? You’ll have to locate an appropriate building to lease and cover monthly rent and the costs to renovate it. There will be upfront costs like installing a security system, shelves, and displays, and once you open there will be monthly utility bills and other fixed expenses before the dispensary turns a profit.

Small business owners expanding or investing in an existing cannabis business could face many of the same costs. Knowing why you need to borrow – i.e., how you plan on using the funds – helps determine how much you should borrow.

Here are some of the most popular reasons those in the cannabis industry take out small business loans:

• Invest in new strains, a grow house, or grow lights
• Expand in or open a new medical dispensary
• Purchase inventory
• Cover operating expenses like payroll or rent

Knowing why you need the money sets your borrowing limit and dictates how much capital you need to fund the business plan.

Can your business’s cash flows cover your monthly loan payment? It’s an important question. Add up your fixed expenses – like rent and utilities – and calculate the amount of free cash flow you have left each month. If it’s not enough to make your loan payment, you shouldn’t borrow (or you should borrow less).

A loan payment is calculated by taking the amount borrowed and plugging it into a calculator with the repayment term and interest rate. Therefore, borrowing less reduces your monthly payments. Ask your lender what you’d owe each month before signing on the dotted line.

Your cash flows must cover the loan payments – particularly if there is a delay between when you have to pay for any new equipment and when that new equipment generates sales. When making a budget include a plan to pay back the loan. And try to plan for the unexpected, such as difficulties installing new equipment or a power failure that kills your new seedlings.

How much revenue will your new grow operation generate in the first year of operations? In the third year? Before you borrow to fund a specific project, you’ll want to have a reasonable expectation that it will turn a profit.

When you borrow to fund a small business project it should have an expected return that’s greater than the loan’s cost. It’s best if the project generates more revenue for your business in the long run, not just breaks even. Evaluating a potential project in the cannabis industry can get quite complicated given the variables of changing local and state regulations and laws.

Before taking out a loan, determine if the project’s revenues will both pay back the loan and generate a profit using a few different scenarios.

Small business owners with poor credit will find it harder to borrow. Lenders look at your personal credit score and the business’s credit history impact when deciding whether or not to lend to you. It also impacts the loan’s terms and interest rates.

Before approaching lenders, pull a free copy of your credit report and check your credit score. If you see any inaccurate information, work with the credit bureau to have it removed. Knowing your score gives you an idea of the rate you’ll pay to borrow – since a lower credit score reflects higher risk to the lender, you’ll pay more to borrow.