CBD Business Loans - Alternative Funding

The cannabis business is one of the fastest-growing and most profitable segments of business to emerge recently. It became legal in 2018 through the Hemp Farming act to produce help-based products and products including CBD (cannabidiol), which is extracted from help.

The legality of this industry does not make it easy to set up a CBD business, however. cannabis business funding can be tricky to procure, as many banks and other lenders struggle to catch up with current business trends. The hesitation can come partly from the fear of a lack of federal oversight because cannabis and cannabis products are still federally illegal.

Despite this challenge, Cannabis sales have reached $10.8 billion in the United States. Cannabis sales are predicted to grow to over $100 billion in the next 5 years, which is leading several private lenders are seeing the opportunity to invest in such a promising industry. Securing CBD business funding is possible, but it might be worth looking into a range of financing options if you are a cannabis entrepreneur.

The legality of CBD businesses

Since the new law in 2018 came into effect, there have been some changes to getting a CBD business Loan, but there are still strict laws and regulations which make banks hesitant to lend. Federal guidelines dictate that hemp must not possess more than 0.3% THC and other Cannabinoids. Hemp crops that meet these criteria may occasionally be grown with more THC by chance, and these crops are unable to be used in any CBD products.

Because CBD and hemp’s legal status has only recently changed, many businesses in this space are startups. This is a problem when it comes to securing CBD business loans because banks and other financial institutions generally prefer to lend to businesses that have been running for at least three years. It can be difficult then as an entrepreneur in the cannabis industry to qualify for a loan on those grounds alone, let alone all the other legal issues and hesitations.

Bank loans

Securing a CBD business loan from a traditional bank lender is not impossible, but you are likely to encounter more roadblocks. Cannabis is in a unique legal space because it is legal in many states but federally illegal. Because of this, banks are unable to provide loans to cannabis-related businesses if they are insured at the federal level.

If you are in any way close to a strain of Cannabis that crosses the line of 0.3% THC, banks may be particularly hesitant to offer CBD business financial support because of the legal issues associated with that. The other problem with traditional bank lending in this space is that federal branches like the FDA still aren’t completely across the operations of managing cannabis products.

Because there is a possibility that rules and oversight may change over time, banks are hesitant to support CBD businesses that may change significantly. Banks may also be concerned about cannabis businesses may lose their FDIC insurance, which would significantly limit the viability of a CBD business.

The last reason why securing financing for cannabis business through banks can be challenging is a phenomenon known as the “green rush”. There any so many new cannabis businesses seeking financing since the law change occurred, and it can be difficult for banks to tell the legitimate businesses from the fraudulent claims being made. They may not have the time or resources to find this out for every CBD business that comes to them.

Alternative Cannabis Business funding options

Banks may not be willing to offer loans to Cannabis businesses, but there is a huge range of alternative small business funding options.

Bridge Loans

One of the funding options where cannabis business owners have found success is a Bridge Loan. This cannabis business funding option is designed not as a long-term loan, but more as a bridge to fill a gap in financing. They are short-term loans that let businesses continue with their normal operations while they continue to search for longer-term financing options. They can be extremely valuable if you are in a financial pinch and need a little longer to search for sustainable business funding options.

Merchant cash advances

A Merchant Cash Advance is another option for cannabis businesses that are already running. Similar to many other types of advances, these cannabis business funding loans are designed to cover short-term shortfalls for expenses and business transactions. It is another form of financing that provides short-term relief rather than a long-term solution. The drawback of this type of loan is that interest rates can in some cases be very high, so they are best utilized as a last resort.

Collateral loans

You can use collateral such as equipment, vehicles, or even real estate as collateral for your CBD business loan. This means that you can borrow a percentage of the value of your assets, between 80% and 100% generally. Your lender will then have the power to repossess your assets if you cannot repay your loan, however, so you should ensure that you will have the ability to repay before you go ahead with real estate and CBD equipment loans.

Private loan

A great financing option for cannabis businesses, particularly those just starting is a private loan. Many private lenders function the same as a business, and they are far more likely to see a moneymaking opportunity in cannabis and grant CBD startup business funding.

Which type of cannabis business funding loan is right for me?

A good way to determine which type of cannabis business funding loan is right for you is by clarifying why you are taking a cannabis business loan, and what you will use the money for. You can look at specific types of business loans to fill temporary shortfalls, purchase new equipment, or expand your business.

You will also want to reflect on your priorities with a cannabis business funding loan. A lower-cost business loan may require you to spend more time on an application and accept a lower amount or put up more collateral. It is wise to compare business lenders and narrow down your options and then reach out for the opportunity to chat with your lender and secure a more personalized offer.

Because qualifying for business loans can be challenging for Cannabis businesses for a range of reasons, it is often advisable to work with a lender who specializes in start-up financing or the cannabis industry. This will give new businesses the best odds of securing a loan that works best for them.

How to apply for a cannabis business funding loan?

Applying for private loans as opposed to bank loans generally requires less documentation and can be quicker and more convenient. You will still have to provide both a credit report and your bank statements.

Lenders ask for that documentation to ensure that you will be able to pay the business loan back. They will check your business's credit score and will generally require a score of 700 or higher. They will also look for a solid record of on-time payments of any bills or loans, and you may not qualify for some loans if you cannot demonstrate this. You also will be disqualified from many forms of business loans if you have declared bankruptcy in the last 10 years.

At South Florida Funding Group, we are passionate about finding great ideas that may not be supported by traditional financing options. We know that securing funding for cannabis businesses can be difficult, and there are some unique challenges in this space.

We are excited about the massive growth that the cannabis business has had in the last few years and know that it will continue to grow. Great businesses and ideas that struggle to find cannabis business funding through traditional means will often find great options through non-traditional means. We provide cannabis business funding and understand the growth opportunities and challenges of this industry. Get in touch with us today to chat about how we can help you.  Call today: 786-544-2700