Since marijuana is still illegal on a federal level, this makes acquiring business loans more difficult for cannabis brands than any other company. Banks do not want to loan you money since what you are selling is illegal (on the federal level, anyway), which leaves many businesses wondering where they can turn to for financial help.
Why Federal Banks Will Not Lend You Money
While it is not illegal for banks to conduct business with cannabis sellers, the federal illegality of marijuana is preventing banks from offering financial services to these companies, according to Sundie Seefried, Founder and CEO of Safe Harbor Financial. Any proceeds coming from a business that are considered illegal and then get processed through the financial system, flags that bank as laundering money. Even though you may be earning revenue in legal states, the banks cannot engage in the growth of an illegal business at the federal level.
If and when marijuana does become federally legal, Andrew Bowden, CEO of Item 9 Labs Corp., thinks federal banks will definitely start offering loans to cannabis businesses. “I do not see federal legalization coming very soon, but we would be better off down the line with The Safe Banking Act, which aims to protect banks who do choose to offer services to cannabis businesses. By ensuring that those working in the state legalized industry have access to counsel, it will help to prevent money laundering and other crimes associated with off-the-book cash transactions,” he said.
Aside from asking for money from friends and family, there are a wide variety of private lenders out there who have been helping cannabis businesses for years. But before we tell you where to go, here is a checklist of items you need to have at the ready when applying for a loan from any of these places:
What You Need
- Make sure you are operating within a legal state
- Have a business license
- Bank statements
- Profit and Loss statements, as well as tax returns. These are not required, but may help expedite the approval process
According to Sara Gullickson, the founder and CEO of The Cannabis Business Advisors and streaming platform How to Open a Dispensary, acquiring a cannabis business license is crucial before applying for a loan since they are not guaranteed. Why would a lender invest in your brand if you may not even be approved for a license? Once you get that approval, that is your green light to go through a private lender or self fund your business.
How to Prepare
Now that you know what you need to have on hand in order to apply for a business loan, Jay Czarkowski, licensing expert and founder of Canna Advisors, offers some steps that cannabis businesses should take before applying:
1. Provide Accurate & Detailed Financials
The biggest thing any cannabis business can do is make sure they have very accurate and detailed financials. Czarkowski helps run a private equity fund and has seen many pitches that were just thrown together with vague numbers and not enough details. If you cannot put that together yourself, it is best to hire someone who can.
“The most important thing is to have your finances in order. Lender’s like to see a company with organized files and up to date accounting. If you are able to provide a lender all of the required documents right away, you will jump to the top of their priority list because it is an indication of how you run your business,” Gabriel L. Selko, Founder, and Executive Managing Director at Sweet Leaf Madison Capital, LLC, said.
2. Be Clear with How Much Money You Need
If a business is looking to raise money, think about how much you need and make sure whatever you are asking for is enough to get your brand where it needs to be. The more details that you can provide on what the money is being used for, the better.
3. Provide Information on How You Will Pay the Lenders Back
Investors always want to know how they will be getting their money back, so not only do you need to succeed as a startup, but you also need to stay in business to be able to pay back your loan. Give the lenders information on any plans that you have to succeed or grow your business so they know you will not tank almost immediately.
4. Hire a Dedicated Team
Another element that Czarkowski notices the most when looking at potential borrower’s information is their team members. In order to be successful as a business so that you can pay your loan back, you need a dedicated team on hand. The experience and expertise of the team members is very important, so any cannabis business looking to take out a loan should have all of the information about each team member and what they can bring to your brand at the ready.
5. Market Outlook in Your Surrounding Area
One important factor that cannabis businesses may not think about when applying for a business loan is the outlook of the market in the area where you will be selling. For example, if you are setting up shop in a limited license state, but already have your license to sell marijuana, that is more valuable than selling in states that give out thousands of licenses. Having a license in selective states is more interesting and rare, so there is a competitive nature of the local market to keep in mind when applying.
“Although there are more options than a few years ago, the number of lenders to this industry are still very limited,” Selko said. “If you have stellar credit, five years in business, great top line revenue, good profitability, and the money is being secured by hard assets, there are lenders that can be very competitive in terms of what they can offer. If your company does not check all of the boxes, you will be considered non-bank credit, and will need to look for other specialty lenders in the space.”
Where to Get a Private Loan
Until cannabis businesses can receive loans from federal banks, you can utilize private lenders for financial help. Bowden advises brands to be cautious of these companies, as the interest rates can be extremely high, so always look at the fine print before finalizing anything. Here are some top notch private lenders to help kickstart your search process:
Safe Harbor Financial
Established in 2015 by Partner Colorado Credit Union (PCCU), Safe Harbor was formed to provide an unmet need — compliant banking and financial services to the rapidly growing U.S. cannabis industry. Seefried designed a full scope Cannabis Banking Program for PCCU known as the Safe Harbor program, which has withstood the scrutiny of 16 federal and state exams to date. Now in its 8th year, Safe Harbor has grown to nearly 600 accounts spanning 20 states, and processed over $12 billion in cannabis-related transactions.
Safe Harbor offers loans to cannabis businesses and cannabis business owners for:
- Purchasing a commercial property
- Cannabis equipment
- Refinancing an existing commercial real estate loan
- Cashing-out on an existing commercial property
In order to apply for a loan from Safe Harbor, you can give them a call at 303-431-3435 or by filling out their online loan application. Once you contact them, Seefried says they will:
- Conduct research on your company to make sure you are a legally operating business
- Get to understand your goals and needs
- Propose possible loan options
- Start an underwriting process, which is an insurance policy guaranteeing you will pay your loan back in case loss or damage occurs
FundCanna
FundCanna provides working capital and cash flow to cannabis dispensaries to keep shops stocked with inventory. Adam Stettner, CEO and Founder of FundCanna, has been responsible for starting and running companies that provide financial help to businesses for over 14 years.
FundCanna offers financing for all cannabis needs, including:
- Vendors
- Working capital
- Equipment
- Dispensary and store fronts
- Inventory
- Cultivation
- Manufacturing
In order to apply for a loan from FundCanna, you can give them a call at 844-420-3863, or you can fill out the application form on their website. “To qualify for funding, the borrower must be operating in legal condition, have a cannabis license, complete our application, and provide three-to-six months of bank statements. It is a very simple process,” Stettner said.
Bespoke Financial
Founded in 2018, Bespoke Financial is the first licensed commercial lender focused on the cannabis industry. By pioneering access to capital, they partner with all types of cannabis businesses to spark and scale their success.
Bespoke Financial offers loans to cannabis businesses and cannabis business owners for:
- Line of credit
- Inventory financing
- Purchase money financing
- Invoice financing
- Dispensary financing
In order to apply for a loan from Bespoke Financial, you can fill out the application form on their website. Once approved, you will be assigned a credit limit and financing fee based on your capital needs and credit risk profile. Bespoke Financial’s lines of credit range from $100,000 to $10 million, and typical fees are 2.5-3.5%. There is no application fee and no additional fees to worry about. Applicants must submit recent financial records (balance sheets, income statements, and bank statements), disclose key management personnel and provide a list of all active cannabis licenses currently held.