Legal marijuana sales are booming across the U.S., so many people wonder how to break into this industry. If you’re not one of the few lucky folks who can finance their own cannabis company, you’d need to seek out funding. SBA and other government loans are not available for this industry, which leaves a few options for folks looking for financing. Here are a few basics to give anyone interested in this industry a starting point.
Alternate Lending in Cannabis Business – Working Capital
Alternative loans from institutions that aren’t banks can be a good place to start. Dynamic Alternative Finance, a Dever-based firm, connects marijuana entrepreneurs with investors. Over the last two years, the firm has helped finance $27 million in loans and leases for cannabis businesses. Firms like these are present in states with recreational or medicinal marijuana. Other than taking out a home equity line of credit, using credit cards, financing firms like Dynamic Alternative seem to be the most common way to get financing.
However, all lenders work off debt or equity based financing. Debt lending is based on credit score, character, capacity to repay, cash flow and collateral. Those who decide on this route need to know how much is needed and how it will be spent. Plus, they need to provide organized financial information that includes a balance sheet, evaluation of assets and credit score. Equity investors will be more interested in full pitch of the product, market, competition and more. This type of funding is provided based on expansion projections. Often, equity investors requite a bigger return than a debt lender.
Savvy investors are diligent when it comes to their investments, so fudging numbers wont help.
As the years progress, so does cannabis policy. There are likely to be more ways for folks to finance legal marijuana businesses as the industry develops and becomes more widely accepted.