With more states and countries legalizing the use of cannabis in medical facilities, it is certain to grow in recent years. Consequently, many new entrepreneurs are shifting towards this business model with an optimistic outlook on this industry.
However, the industry is way beyond just selling marijuana. Instead, various entrepreneurs are looking forward to creating a space in farming, laboratory research, dispensing, etc. in the cannabis industry.
Like any other sector where machinery is an integral part of the process, this business demands huge investment, which might be too gruelling to afford for some. With the right equipment, you can improve productivity, sales, and revenue. This article is a comprehensive guide about cannabis equipment loans and the requirements to apply for one.
What are cannabis equipment loans?
Similar to any financing scheme or loan, it is a loan offered for purchasing equipment for the cannabis business. However, unlike any other loan, cannabis equipment loans are easy to apply for, and the funding process is quick. Moreover, you can get up to 100% of the loan amount with monthly payment terms, lower upfront costs, etc.
How does a cannabis equipment loan work?
The loan processing starts when you submit your application. Furthermore, you have to choose between a variable and a fixed rate. While a fixed-rate financing option may bring you stability, the monthly interest can be skyrocketing. Instead, new businesses can decide on variable loan rates for lower monthly interest payments, however, the rates are subjected to change at any given point in time.
But wait! Don’t jump in for the first deal. Make sure to shop around since various cannabis equipment loan lenders offer lucrative perks such as prepayment penalties and delayed payment for more than a year.
Financing rates for cannabis equipment loans
Unlike other loans, cannabis equipment and leases have higher interest rates. Just like conventional equipment loans usually have an interest of 5-8% that varies on changing market rates, down payment rate, etc. However, since the risks are high in this business, entrepreneurs should expect a high rate of about 8-25%.
What are your options for cannabis equipment loans?
The cannabis industry is growing steadily. However, to keep the use of marijuana in check, strict federal regulations are applied to it. Hence, applying for a loan for cannabis from national banks seems impossible. Besides, the cannabis industry is likely to end up on the restricted business lists of most lenders.
Moreover, you might not be eligible to apply for business credit cards or SBA loans. Are there any options or scope in this industry then? Well, while financing for your cannabis industry might seem vague, however, you are in for a surprise!
You can find a lot of private lenders, venture capital investors, and credit unions that can offer you cannabis equipment loans in states where it is legalized by federal law. Besides, you can also find dedicated loan options that offer to finance to medical cannabis and cannabis dispensary companies.
Moreover, you do not have to worry about local regulations or laws, since most alternative lenders can navigate around them and help you to build your business by providing funds.
Which Cannabis equipment is available for finance and lease?
Cannabis manufacturers require a lot of machinery to jumpstart their business. Why? Well, it involves large-grade productions which only made possible with the help of equipments. Here are some of the common cannabis equipment that can be leased or financed:
HVAC Units
A cannabis nursery requires an efficient HVAC system to manage optimal temperature and humidity for better yield. Besides, the HVAC will probably run throughout the day and night, hence they should be energy-friendly to avoid hefty electricity bills and should offer better airflow to resist odor.
Cannabis lighting equipment
If you are growing your produce indoors, you will surely need lighting equipment. A grow lamp with perfect lighting plays a great role in ensuring the yield. Hence, you should consider choosing a good lighting machine to maintain a normal environment for the plants to grow.
Security devices
The cannabis business has high stakes and is controlled. Hence, business owners should invest in effective security equipment. In addition, the majority of the states have regulations that mandate the use of security devices to safeguard cannabis production.
Hence, you can choose to lease or finance security machinery including video surveillance, alarms, digital storage, etc.
CO2 extractors
These are essential pieces of equipment in the cannabis industry. CO2 extractors are mostly used to source oil from these plants which are necessary for cannabis-based products such as THC or CBD. However, most of these products have a hefty amount that might not be possible to afford. This is why financing leasing this machinery is your best bet.
Who can qualify for cannabis equipment loans?
Qualification mainly depends on the type of equipment requirements, business financials, and credit scores. Besides, a credit score of 650 or higher is required to be eligible to apply for a cannabis equipment loan.
Unlike other loan regulations, you can still probably get approved for leasing or financing cannabis equipment even if your credit score is not up to par. However, you might have to look for a willing lender which might not be easy to find. You should keep looking for options since the rules vary from lender to lender.
What do you need to apply?
The application process for a cannabis equipment loan is quite easy and fast. You need to produce documents such as driver’s license, voided business check, application form, and equipment quote. It usually takes 24 hours to approve a loan and it might take up to two to three days to receive your funding.
Can you get a loan or lease on pre-owned equipment?
Unfortunately, the answer is not likely? While second-hand equipment is widely being used, the majority of the lenders tend to stay steer clear of second-hand cannabis equipment. A lot of specialized lenders still offer financing and leases on pre-owned equipment. Just keep looking.