Cannabis Business Funding

Small business funding can be difficult to get by itself when you are starting your dream CBD business, but there are some unique challenges when it comes to cannabis business funding. If you are looking to get a cannabis business loan, you may need to look into alternative funding for small businesses. The goal here is to help you better understand CBD business funding so that you know all of your financial options when starting a cannabis business.

Raising Seed Capital and Series A

When you are first starting out, you will likely end up using your savings or getting money from your loved ones to get started. One of the reasons for this is that there are many challenges to getting funding for your cannabis business, especially when you are first starting out. During the first round of gaining the seed capital that you need to start your cannabis business, you may find that there are some places that will offer commercial funding, but this can be harder than the traditional approach for cannabis businesses.

This first “seed round” is there to help you build up your product to get the early attention your business needs, helping you better establish your brand. If you’re lucky, as you pilot your cannabis brand to beta customers you may end up retaining them when you launch your cannabis business. When you get to the Series A round of funding, this is where you start to begin your cannabis business operations and start the slow, scaling-up process. This is where you may find additional investors who want a stake in your business and offer you additional funding for your cannabis business.

These are important steps that can help you find cannabis business funding, which can be especially important since there are challenges when it comes to gaining funding from traditional financial institutions.

Challenges With Getting Funding For My Cannabis Business

The biggest challenge that you are going to face when starting your cannabis business is the legality of cannabis. While your state may have legalized it, it is still considered illegal on the federal level. This is a problem because the major banks are regulated by the federal government, which means your business is technically considered “criminal activity”. As such, these federally chartered banks won’t get involved with cannabis business funding.

Banks may be subject to money laundering laws, which can lead to major fines for the bank. The laws around money laundering are extremely complex, which is why many of the major banks that you would normally trust for business financing won’t work with you because of your cannabis business. This means that they won’t issue you credit cards, cannabis loans, or other financial services that you may need.

This doesn’t mean that you don’t have options. While some major banks, big and small, must abide by federal laws especially the Bank Secrecy Act, which requires banks to flag any transactions that may be from illegal activity over $5,000. Many banks take a serious risk when helping cannabis companies due to federal regulations.

Alternative Funding for Cannabis Business Loans

You do have several options thanks to alternative financing. Alternative funding for small businesses was specifically made for people who may not be able to get a loan the traditional way. While your preference may be a bank that you are familiar with, alternative funding locations are going to be your best bet. These institutions aren’t bound by federal regulations, so you are more likely to get funding by taking this approach.

In this section, you can get a closer look at some of your best cannabis business funding options:

Angel Investors

Angel investors have a goal of helping other people achieve their dreams of starting their own businesses. There are angel investors who are dedicated to helping those in the cannabis industry specifically, so these can be excellent places to turn to. Where do you find angel investors? There are websites where you can search through investors, but you can also attend cannabis industry events to find interested parties. You may find it easy to apply for a Cannabis business loan – click HERE to see if you qualify.

Venture Capital

You may be able to also find help from venture capital firms. Again, there are several options where certain firms are specifically looking to help those in the cannabis industry. However, the catch here is that you need to have already gone through the seed funding stage otherwise these firms may not consider you.

Crowdfunding

While you may already be aware of major crowdfunding sites like Kickstarter, you may not be aware that there are also cannabis-specific crowdfunding sites. These specific sites can be a good idea to find funding for your new business.

Online Lenders

Traditional institutions may not be as willing to offer you money for your cannabis business, but online lenders are more willing to offer you the funding that you need for your cannabis business. Many online lenders have different options such as lines of credit, merchant cash advances, and other short-term solutions for your business. You may end up having to deal with higher interest rates, but these alternative funding institutions will typically give loans to people who otherwise struggle with getting loans.

How to Decide Which Financing Option Is Best For My Cannabis Business Funding

If you’ve decided on going with an online alternative funding lender, you have a few options that you can choose from. Online lenders can often be the best choice for cannabis business funding, but they have different financing options that each offer their own benefits. This section will take a closer look at the most common cannabis business funding options you can find with online businesses and how to choose which one is right for your needs.

Short-Term Loans

Short-term cannabis business loans are options where you apply for a loan where you can receive a lump sum of cash, which you can use for any purpose for your cannabis business. You can use it as start-up capital, purchasing any equipment that your business needs, paying new employees, marketing, or anything else that your cannabis business needs at that specific moment in time.

There are a few benefits to short-term cannabis business loans. First of all, you can get a lump sum of money that you can use for whatever your business needs. You can also get your funding pretty quickly, in some cases under a week. However, while these loans don’t have an interest rate, they do have a factor rate. This added to your loan as a one-time fee and is determined by similar factors as your interest rate would be.

Equipment Financing

Equipment financing is used to buy the necessary equipment you need to run your cannabis business. There are a couple of different approaches to equipment financing. You can either take out an equipment loan or an equipment lease. With an equipment loan, you pay an additional 10% - 20% on the cost of the equipment, and you can get it immediately and start using it right away. You will then pay the loan regularly per the loan terms and can gain ownership of the equipment after your loan has been paid off. Equipment leases mean that you put a down payment on the equipment and make payments per the lease agreement. After the end of the term, you can return the equipment or keep it.

Leasing can be an appealing option, especially if you like the ability to constantly upgrade your equipment. The issue with this approach is that not only will you end up paying more over time for your equipment, but you also never gain ownership of it. This means it’s not technically equity that your business has.

Lines of Credit

The great thing about getting a line of credit for your cannabis business is that you get flexibility with it. With this option, you aren’t getting a lump sum of money as you would with short-term loans. Instead, you get a credit limit where you can borrow what you need to when you need to. There are interest or fixed fees that you have to pay with this option, but these fees are only based on the amount that you’ve actually borrowed not your total line of credit.

If you have credit problems, a line of credit can be a great choice. This also gives you the flexibility that you need to only borrow when you need to, and you can keep returning to get more money as you need it within your credit limit. You can also use these types of loans for whatever you need for your cannabis business.

Merchant Cash Advances

Are you already in business and just need more funding for whatever reason? Merchant cash advances can be a great option if you make credit card sales for your cannabis business. What this type of funding does is allow you to exchange future revenue for money right now. Lenders will then withdraw money from your merchant account on a regular basis until the loan is paid off, depending on the lender.

Conclusion

There are challenges that you will face with finding funding for your cannabis business. But just because there are challenges, that doesn’t mean it’s impossible. With an online lender like us, you can find the alternative business funding options that you need to launch or grow your business.  See if you qualify: CLICK HERE