How to get money to finance a marijuana business
Obtaining funding for a cannabis business can be tricky if you don’t where to look or what you’re doing. Find out how to get money to finance a marijuana business.
The cannabis industry is emerging as one of the most lucrative industries across the US. And as a result it’s attracting an increasing amount of attention with aspiring entrepreneurs.
If you’re you’re looking to get your cannabis business up and running, you may also be thinking about how you can raise funding for it.
Raising funding for a cannabis business can be challenging. But it’s important to cover your startup costs for supplies and equipment needed to run this type of business.
In this article, we’ll look at why funding for a marijuana business can be so tough, and share some in-depth information about the various options you may have to secure the funding you need.
Why is funding so difficult to find?
The reason most banks reject doing business with or providing funding to marijuana businesses is because of the Federal Deposit Insurance Corporation (FDIC). The FDIC plays a large role in this because they refuse to provide insurance to banks that take on risks.
If a bank is going to provide loans and risk the potential backlash, then the FDIC doesn’t want anything to do with it.
But that doesn’t mean you’re completely stuck. There are a variety of options at your disposal that will still provide you with the money you need, regardless of the FDIC’s apprehension.
Equity dispensary loans
The first option you’ve got when it comes to funding is an equity dispensary loan. This means that you need to find potential investors and pitch them your business idea.
You’ll need to show them your business plan as part of the process. Your plan will need to outline every detail of your business, including monetary needs.
After an investor has fully investigated the viability of your business plan, they will make a decision. Hopefully, they will decide to provide you with capital to make your business dreams come true.
But there is a catch with an equity loan when it comes to accepting capital from business investors. In exchange for their capital, you will be expected to provide each investor with a percentage of your business.
This means that they will be owners in your business. But while that may seem intimidating at first, there are a lot of benefits that you’ll get from taking this financing route. The first is that you won’t be on a payment plan as you would with a traditional loan.
Loan payments can have high interest rates attached to them. But with equity financing you don’t have to worry about that.
And while, on the downside, giving up and sharing ownership means that that all the decisions you’re going to make won’t be yours, on the upside you’ll benefit from the business expertise and contacts of your new business partner.
Traditional cannabis loans
As we’ve already stated, many banks will turn you away when you’re seeking financing loans for a cannabis business. But there are a select few banks that will still move forward and provide you the investment that you’re looking for to get your business going.
But before you sign on the dotted line, you need to ensure you understand all the terms of the loan you are taking out, especially the interest rates you’ll be paying. These interest rates cover the risk that the bank is taking.
After you’ve been granted your loan, you’ll have to set up a payment plan. This payment plan will detail how much you’ve got to pay back each month. The payments will continue until you’ve paid off the amount you’ve borrowed.
It’s essential that you make all your monthly payments. If not, there will be penalties that could be brought against you and your business.
It’s better to have these penalties provided to you in written form. That way you’re aware of everything that you’re signing up for when accepting this traditional banking loan.
The money that you receive from your loan will help to cover your business space rent as well as cover the cost of your employee pay stubs. Using a pay stub generator can be challenging when you don’t have the resources to do it properly, and a loan can help with the important startup costs.
Alternative or marketplace lenders
If you find that you’ve been turned down by investors and the traditional banking system, then another option that you may want to consider is alternative lending.
Alternative lenders are entities that operate outside of the traditional system. These are usually options that people who have exhausted all traditional lending options turn to.
It’s important to be aware though that when you use alternative lenders there will be consequences if you don’t pay back the money you’ve been lent.
Whatever you have used the money for, whether it was to buy cannabis seeds or lighting for your growing house, it will be taken away from you to meet your debts if you don’t keep up with your repayments.
So it’s essential that you are absolutely confident that you can make your monthly payments and cover the interest rate you have agreed to before borrowing money.
Like traditional banking, you’ll need a thorough understanding of the contract you’re entering into with the alternative lenders to avoid any issues that may arise in the future.
It’s recommended that you understand the contract in its entirety. The last thing that you’ll want to happen is to begin making money and then run into issues with your funding.
Finding funding is challenging enough without having it taken away from you and threaten the success of your thriving business.
Securing cannabis business funding
When it comes to your cannabis business funding options, it will take time to search for the right way to borrow money.
Before you begin your journey, ensure that you’ve developed a strong business plan to present to your potential investor. Your plan should also outline your intentions to pay back the money that you borrow.
With the right finding you can invest in building a successful cannabis business – and repay your lenders according your agreement.