How to Secure Funding for Your Cannabis Startup: Alternative Lenders
The legalization of cannabis in the United States has paved the way for a booming industry. With recreational cannabis being legal in 16 states and medicinal cannabis legal in 42 states, the private sale of this product has opened up numerous lucrative business opportunities for entrepreneurs. However, funding a cannabis startup can be a challenge. In this comprehensive guide, we will explore various ways to secure funding for your cannabis business.
The profitability of this industry is only growing. Funding for startup cannabis businesses is in high demand. We know cannabis business loans.
In 2012, Colorado and Washington became the first states to legalize recreational use fully. Now, less than a decade later, 14 states have followed suit. This, coupled with 30 years of medical cannabis revenue, has developed into a 60-Billion-dollar industry.
US cannabis sales increased by 67% last year. Top financial forecasts expect the industry to be worth 130 billion dollars by 2024.
The Booming Effect of Startup Cannabis Business
With all this money lying in cannabis, it would be tough to argue against the success a startup would surely find in this field. But there is one major issue that cannabis businesses face. That issue is financing. The bulk of business owners needs to rely on loans and financing in some form or another to manage operating costs.
The problem is that since cannabis is still illegal at a federal level, traditional lenders like banks and credit unions cannot deal with people in this industry. Since banks receive funding from the federal government, they consider any business associated with the sale of cannabis to be illegal and illegitimate.
Historically, entrepreneurs have had an exceedingly difficult time receiving financial assistance. This has created a barrier, deterring many from joining cannabis-related business ventures. Things have changed in recent years. Now, select alternative lenders can provide funding for startup cannabis businesses.
While you may not have as many options as traditional businesses, alternative lenders can provide flexible financing choices.
Short-Term Business Term Loans
A term loan is a one-time portion of capital to be used for whatever business expenses you need, whether day-to-day costs or a single massive purchase to accommodate expansion.
Term loans typically fall under one of two categories: short-term and midterm. Short-term is going to be easier to qualify for but deal in smaller amounts, while mid-term can give you a higher level of funding but will be much harder to qualify for.
One advantage of term loans is that they deal with factor rates. This means that instead of an accumulated interest rate, you will be given a set amount to be paid back over a window.
This is a fantastic option for you as a cannabis business owner since you do not have to worry about accruing massive interest while paying off the loan.
To qualify, you must have the following:
- Been in business for more than a year.
- A minimum credit score of 500
- A greater annual revenue than $100K
Line of Credit
Is a line of credit a good choice? A line of credit is perfect for you if you are unsure what your business needs will look like down the road.
Unlike other loan options, a line of credit gives you a resource you can tap to place funds in your bank account instantly. This will give you the ability to meet unforeseen costs. This will also help you accommodate an opportunity that requires a time-sensitive expense.
To qualify, you must have the following:
- Been in business for at least one year
- A minimum 600 credit score
- At least $100K in total annual revenue
Equipment Loans
Equipment financing is a lump sum is given out by a lender to fund the purchase of business-related equipment. Growing cannabis is labor-intensive and typically requires a great deal of farm equipment.
Equipment loans will be a great choice if your company is involved with growing and cultivating, as the money can be used to purchase soil, pots, or vehicles for larger operations. These will be especially beneficial for indoor growers, as additional equipment, such as growing tension and ventilation systems, are necessary and can prove costly.
Equipment financing falls under the category of self-secured loans. The equipment itself will serve as the collateral to back the capital. Some equipment specific to farming has a heavy depreciation of value over time. This means lenders may require additional collateral to move forward with distributing funds.
To qualify, you must have the following:
- Been in business for longer than one year
- A minimum credit score of 630
- Annual revenue of more than $100,000
Invoice Financing
If you are in the business of cannabis, you know all too well that it can take a long time for the money you are owed to end up in your pocket. This stems from the fact that there are so many start-up costs and maintenance costs. You must also contend with the uncertainty of a market, hindering state-by-state legality.
It’s common to contend that cannabis retailers are prohibited from running credit card transactions. This means that every sale needs to be made in cash. On top of that, it is exceedingly difficult to put any capital accumulated through the sale of cannabis into a bank. In the eyes of the federal government, this would be considered money laundering.
In 2019, a bill called the SAFE banking act prevented bankers from facing legal recourse for working with merchants in the cannabis industry. The idea is new, and despite the legislation, many banks are still reluctant to work with cannabis-based businesses.
The point here is that although you might have a lot of income, that doesn’t necessarily translate into immediate spending power. Invoice financing will be a great way to work around this dilemma.
Invoice financing can render the money you’re owed to receive an immediate cash influx.
To qualify, you must have the following:
- Been in business for more than a single year
- A minimum credit score of 600
- More than $130K in annual revenue
0% Business Credit Card Stacking
A business credit card is a great way to finance start-up costs or rapid growth. This is a solid option for any cannabis business owner if they have good personal credit of 700> FICO score or better. BitX Funding has a unique set of connections, knowledge, and financing. BitX has the tools and capabilities to connect you with a 0% interest credit card to help you finance your cannabis business needs.
To qualify, you must have the following:
- Six months in business
- A minimum credit score of 700>
Personal Loans for Business
A personal loan is like a term loan in the way it is a one-time lump sum. A personal loan is extremely flexible, rather than relying upon your business’s revenue for qualification. The sole determining factors lie within your financial state.
If your credit history is sound, qualifying will be no problem. This is a great choice if you are an entrepreneur just starting a business and looking for help with the off-the-ground costs.
An added benefit is the flexibility provided by this loan option. A personal loan does not necessarily have to be for business expenses. Rules boil down to whatever action the lender approves. That is why this is an optimal option for you as a cannabis business owner.
Other alternative loan options may be easy to qualify for, but some online lenders hesitate to give out the money for a cannabis-based business. On top of that, there are still some limitations regarding what you can do with those funds.
So, with a personal loan, there are virtually no limitations on what you can put that money towards. The lender just needs to be okay with it. So, for that reason, it is extremely important to pick the right lender. You want to pick someone trustworthy, someone, who is at ease with experienced cannabis business loans.
To qualify, you must have the following:
- Verifiable personal income of $50K>
- A minimum credit score of 700>
The Time is Right to Get Funding
The US cannabis industry is currently booming. In a time of whirlwind expansion, it can be quite enticing for a motivated entrepreneur to jump on the bandwagon and share in the profit. But getting financial assistance, something that small businesses have always relied on can be nearly impossible.
Billions of dollars in revenue were spurred because of these cannabis companies. Still, the federal government considers the sale and purchase of this product to be illegal. It is troubling when an entrepreneur passionate about cannabis is turned away by traditional financial institutions. Up until recently, they have served as the backbone of this country.
BitX Funding offers Cannabis Startup Loans.
BitX Funding is an alternative lender with years of experience connecting business owners with the optimal loan. We help business owners like you get personal loans for your cannabis business, and we love being able to fill the funding gaps for this rapidly growing industry.
To qualify for a personal loan, you must:
- Make $50K > a year in verifiable personal income
- Have at least a 700 > credit score
- Bonus points for owning a home vs. renting
At BitX, we still believe in small businesses. We will ensure you get the money you need to fulfill your operational demands. Traditional banks cannot get you financing for your cannabis company.
We fully understand and appreciate the legitimacy of your enterprise. We have an array of potential loan options to help you meet demanding costs every step of the way.
How to Prepare for a Cannabis Business Loan:
Preparing a strong funding application is essential for cannabis startups looking to secure financing in the current regulatory environment. Since cannabis sales are not federally legal, lenders are extra cautious when considering funding such businesses.
Therefore, startups should make sure they have a good credit score (700 or higher), a strong personal income, and a solid business plan that outlines their goals, objectives, and financial projections. In addition, lenders will also look for a solid resume with experience in the cannabis industry and a well-rounded team with expertise in their respective roles.
Having no criminal history of theft or conning is also important, as this indicates a level of trustworthiness that lenders value.
Essentially, a strong funding application for a cannabis startup should demonstrate that the founders and team members possess the qualities and experience that lenders are looking for in a good candidate.
What Not to do When Looking for Funding:
The contrast of a good candidate for a cannabis startup would be someone who has a low credit score, unreliable personal income, a weak or non-existent business plan, no experience in the cannabis industry, an inexperienced or unskilled team, and a criminal history of theft or fraud.
Such a candidate would be unlikely to secure financing from lenders, as they do not meet the criteria for a strong funding application.
The absence of these key attributes and experience would suggest a lack of preparation, commitment, and expertise, making the candidate less attractive to potential investors. Additionally, a criminal history of theft or fraud would indicate a lack of trustworthiness, further reducing the candidate’s chances of securing financing.
Overall, a contrast of a good candidate for a cannabis startup would be someone who lacks the qualifications and qualities that lenders look for in a reliable and trustworthy business partner.
Why BitX Funding for Alternative Cannabis Loans:
BitX Funding provides financing options for small businesses in the cannabis industry, including equipment finance, real estate loans, and working capital. Despite the complexities of state laws and federal government regulations surrounding the cannabis industry, BitX has the expertise to navigate these obstacles and offer cannabis business loans.
Moreover, BitX embraces bank best practices and offers competitive interest rates to provide financing solutions for business owners.
For cannabis companies seeking business financing, BitX offers various funding options such as a line of credit and cash advance to help maintain their bottom line. With BitX’s ongoing training and extensive lender base, they can help connect clients with the right lenders and bank accounts for their specific needs.
In conclusion, BitX Funding is a trusted source for cannabis business loans, with a proven track record of helping clients secure funding in a hard-to-fund industry. If you’re a business owner in the cannabis industry seeking financing solutions, consider BitX Funding as your go-to financing partner.
Contact BitX Funding
Our cannabis business loan specialists are standing by. Fill out the form below, call us at 800-824-2407, or click here to begin the loan process. Let’s work together to determine which cannabis startup business loan is right for you.
