The cannabis industry is a promising sector and is growing at a very rapid rate. Both medicinal and recreational use of cannabis is accelerating, and the demand is higher. However, do businesses still face problems while setting their business in this industry? Well, the major issue faced by entrepreneurs is equipment financing.
While purchasing cannabis equipment may not be a choice due to high expenses, you can find loans as well. But, it isn’t with barriers. Many lenders or finance companies are skeptical about investing in this industry due to its market risks and strict regulations. Hence, you can strike out bank loans from the list. On the contrary, private lenders are willing to provide the funds at both fixed and variable interest rates.
What is Cannabis Equipment Financing?
Cannabis equipment financing refers to the funds required to purchase equipment for the production, sales, manufacturing of cannabis. Similar to any other loan scheme, cannabis equipment financing also consists of private lenders who provide a lump sum of money required by an entrepreneur for the equipment. Depending on your credit scores, business trajectory, etc., lenders can provide you with 100% of the money.
Unlike other financing options, the best part of cannabis equipment financing is the no collateral benefit. The equipment that you purchase acts as your collateral in the contract.
Why do cannabis entrepreneurs require equipment financing?
Growing cannabis in your backyard is not a business. But, when you see the bigger picture, there are a lot of aspects to consider. From production to manufacturing to delivery, the cannabis industry is a branched sector. But, why do you need cannabis equipment financing?
Growing cannabis requires an ideal greenhouse environment that mimics its natural surroundings. This is an important step to maintain the quality and quantity of the yield. The process requires HVAC systems, lighting equipment, etc. which can surmount a lot of money. Apart from that, if you are planning to start your career in the cannabis business industry, there is a lot of equipment that you will need along the way.
Some of the machinery that you might need is mainly for Cultivating, Farming, Harvesting, and processing, CO2 extraction, Lab testing, Vehicles and trucks, Security systems, Retail fixtures, business systems, etc. This is where cannabis equipment financing can help you. How? Well, financing options can help you shift the strain on your business’s cash flow and save more capital for future investments.
What are the rates on cannabis equipment financing?
Cannabis equipment loans, unlike traditional ones, have higher rates. The reason is quite justifiable. Even though some states have legalized the use and sale of cannabis, it is still a federal law violation and thus, is subjected to a lot of risks. Equipment loan rates usually range from 5% to 8%. However, in the cannabis industry, the rates tend to escalate and can be 25% more than the usual equipment loans.
Besides, you can get the required capital from alternative lenders, since they operate privately and are not bound by the credit union or bank rules and regulations. Also, these lenders tend to fix the interest rates on your business performance, credit scores, etc. Hence, having a strong business strategy and statistics can help you lower the interest rates.
How can you get cannabis equipment financing for your business?
While finding loans for your cannabis business might not sound impossible, with an alternative or private lenders, the rates tend to vary along with the criteria. For an approved loan, some common qualifications required include clear tax liens, a credit score of at least 650 or even higher. In addition, the operator or the business owner should have a registered license for the production and sale of cannabis.
Moreover, they also have to sign a personal guarantee agreement along with the loan contract. A cannabis entrepreneur should have no history of bankruptcy in the last seven years.
Conclusion
Planning to grow your business in the cannabis industry? While it is an intelligent investment for the long-term, you should also consider some factors along with it. While you are looking for financing options, make sure to interview more than one lenders to know the benefits and make a sound decision.