If you want to start a cannabis business, you may find that getting startup funds isn’t easy.
Marijuana production and selling are legal in some states, but illegal at the federal level. That means most traditional banks won’t provide funding. Read on to find out how to get funding for a marijuana business.
But it could pay big to figure out how to fund a cannabis business. A study by Arcview Market Research found that marijuana sales in North America grew by 30% in 2016.
Options for funding a cannabis business are limited, but solutions and creative financing workarounds do exist.”
As the legal market expanded in the U.S. and Canada, cannabis businesses earned $6.7 billion last year.
According to Michael Hawkins, CFO of the Medical Cannabis Innovations Group (mCig), “Options for funding a cannabis business are limited, but solutions and creative financing workarounds do exist.” mCig is a publicly traded provider of cannabis products and grower services, including merchant services.
Says Hawkins, “When the cannabis market becomes mainstream, banks will eventually begin supporting the industry. When that happens, cannabis companies that managed to grow through these strict financing times will be ripe for acquisition—at great gains.”
Cannabis business funding options
Whether you’re a grower/supplier or seller, you need startup funds for a cannabis business. Here are four funding options.
1. Use the equity in your home
To fund a marijuana business, consider a home equity loan (HEL) or home equity line of credit (HELOC). Because your home is used as collateral, you’re likely to get a low interest rate.
HEL – Home Equity Loan
A HEL is a second loan on your home. This is in addition to the original mortgage and is usually smaller than the original loan with a higher interest rate. You receive the HEL loan as a lump-sum that you can use to open a cannabis business. Such loans usually have a fixed rate. You pay them off over a set period of time.
HELOC – Home Equity Line of Credit
A HELOC is a line of credit. You can take out as much as you need up to the credit limit. You only pay interest on what you’ve taken out. This makes it a flexible financing option for a marijuana business. HELOCs have variable interest rates, so payment amounts fluctuate.
You can only get a HEL or HELOC if you have sufficient equity in your home. If you owe more than the home is worth, you aren’t eligible.
2. Use credit cards
Think you can get your cannabis business off the ground quickly and start turning a profit?
You might consider financing the venture with a credit card featuring a 0% introductory rate. Most of these cards won’t charge you interest for 6 to 24 months. Two years could be sufficient time to build a thriving business.
In order to get a 0% introductory rate credit card, you need good credit (700+). How much credit you receive will also depend on your credit rating and the amount of other debt you have.
Keep in mind that, once the introductory rate is over, if you still have a balance, you could pay double-digit interest rates.
3. Try an online business loan
Consider applying for a business loan to start a cannabis company. Choose from a wide variety of online business loan options. Many have easier lending standards than traditional banks.
Because of state law variations regarding cannabis, some online business loan companies may not fund.
Online business loans feature a streamlined application process. Some online lenders offer low interest rates, while others have high interest rates. Compare rates and terms carefully before borrowing.
4. Opt for a personal loan
Personal loans are commonly used to finance business ventures. Some personal loan lenders have no stipulations on what you use the money for. Other companies don’t allow the funds to be used for business purposes.
The personal loan application process is a simple one. If you have good credit (700+), low interest rates are often available. Some lenders charge high rates, so make sure to shop around.
Additional cannabis business financing tips
Lenders will look more favorably on lending to you if your venture is set up as a legitimate business.
Consult with an accountant regarding incorporating or forming a limited liability corporation (LLC). Get a business banking account with a business name.
Keep detailed accounting records. Many lenders will want to see that your venture has operated for at least six months. They will likely request monthly gross sales figures.
For more information about business loan funding, consult SuperMoney’s Business Loans Reviews page.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.
