As an MRB (marijuana related business) it can be difficult to navigate the lending marketplace to see what the best option is for your business.  The first decision is whether you want to raise equity or debt. Traditional bank financing and SBA loans are not available to marijuana dispensaries and finding the right financing can be difficult.

Now, how do you get financing for your medical marijuana business? Alternative lenders such as cash advance lenders and private lenders have made it easier than ever for cannabis companies to receive funding. While rates and terms may not be as favorable as traditional financing, but once a relationship is established terms can become more favorable.  These lenders are looking for solid revenues flowing through a business bank account, growth potential, industry experience and a high credit score.  Funds can be used for a variety of options including but not limited to launching a new product, securing a new location, purchasing equipment, hire employees, and expansion of your business.

Make sure that you do your research when looking for an alternative lender to help fund the growth of your marijuana dispensary.  Understand ahead of time that some lenders may have restrictions on financing MRB’s and depending on your state most marijuana dispensaries are considered high risk businesses.  Most lenders specialize in one specific financing product for Cannabis businesses.  The different types of cannabis lenders are real estate or collateralized cannabis lenders, equipment financing cannabis lenders, purchase order financing cannabis lenders, sale & lease back lenders, acquisitions lenders, private lenders, and alternative working capital lenders.  Before searching the type of lender, you need to consider what type of financing you need for your business.  There are cannabis financing marketplaces like Upwise Capital that offer all types of cannabis financing options along with payment solutions, merchant services, banking solutions, and cashless ATM’s.

Currently, 35 states, the District of Columbia, Guam, and Puerto Rico have implemented legal medical marijuana programs to some degree.  With the ever-growing marijuana industry choosing the right loan for a dispensary operator is a tough decision.  Many dispensaries have a lot of cash on hand, but still need a loan to take advantage of growth opportunities to expand.  Whether you need a flexible line of credit, a loan to acquire real estate, financing to purchase new equipment, or working capital alternative lenders like Upwise Capital have options available for you.

Term Loans

Term loans can be used for any business purpose and typically come in between 2 years and 5 years.  Depending on the lender you choose, you may have daily, weekly, or monthly payments.  There can be a loan amortization schedule or interest only payment with a balloon payment at maturity of the term.  Term loans for marijuana dispensaries usually take 1-2 weeks to get approved once all documentation is submitted to the lenders underwriting department.    For an MRB to qualify for a term loan, the business must be at least two years in business, must be profitable on their most recent business tax return and the borrowers personal credit score must be above 700.  Interest rates typically will come in between 8% and 18% APR depending on certain underwriting criteria.    Term loans will also require a personal guarantee or corporate guarantee and sometimes requires collateral.  For a dispensary operator terms loans are a great option to fulfill working capital needs at a good cost of capital. 

Equipment Financing

If you need capital to purchase new equipment, equipment financing is most likely the best options for your cannabis business. Almost every type of equipment can be financing through an equipment financing program.  MRB’s can purchase nearly any type of equipment, from greenhouses to cultivation equipment to vehicles to point-of-sale systems to other furniture and fixtures.

There are two types of equipment financing, equipment loans and equipment leasing programs. With an equipment loan, you own the equipment at the end of the term.  With an equipment lease, you never own the equipment unless you pay the remaining balance at the end of your lease and once the lease period ends you return the equipment and sign a new lease for updated equipment. For an MRB an equipment lease may be a good idea if you plan to upgrade any of your equipment regularly. Typically, rates range from 8-25%, determined by the borrower’s credit score, business credit history, and other risk factors.  Given that the cannabis industry is considered a higher risk industry, the rates can be more expensive than conventional equipment financing loans.  For example, traditional equipment financing leases typically come in between 4% to 14% depending on the beacon score.  Most equipment financing lenders will offer leases between 2- 5 years, but Upwise Capital’s equipment financing lenders go out up to 8 years.  The term of the equipment financing loan can range anywhere from 2- 8 years and is determined by several factors, such as the equipment’s lifespan.  Consider that cultivation equipment has a much shorter life span than typical equipment.  When shopping around for equipment financing options make sure that you consider the depreciation of your equipment over time and chose the right term and lender to fit your cannabis business’s needs. 

Lines of Credit

Line of credits are the most flexible type of financing available for an MRB.  It is difficult for a cannabis dispensary to secure a line of credit in this current market, since many traditional banks do not offer financing options to MRB’s that touch the plant.  With a line of credit, you have instant access to funds when you need them, and you do not receive just one lump sum. Instead, the line of credit lender like Upwise will set a credit limit for your account and you can draw on those funds as needed. You can make multiple draws from your line of credit up to the maximum credit limit allocated based on certain risk factors.  You are only charged interest on the funds that you chose to draw from the line of credit.

The line of credit limit, fees and interest rate vary by lender and are usually based on your creditworthiness of the borrower and the businesses performance history.  Some borrowers with bad credit can sometime still qualify for a line of credit.  Upwise has some line of credit lenders that accept borrowers with a 550 FICO score or better.

Terms on a lines of credit will vary by lender as well, but typically line of credits will have a term of 12 months or less.  Rates typically range between 12% and 22% and have payment structures that can be weekly, bi-weekly, or monthly.   

A line of credit is always a good option for any small business because it is so flexible.  The key to a line a credit for a cannabis dispensary is that they can draw the funds when they need them and have access to funds at their fingertips.  As a dispensary operator, being able to move quickly when opportunity comes knocking is especially important.  Funds from a line of credit can be used for any business purpose, and you will not have to wait for approval as funds are available within one business day.  MRB’s can use funds to cover operating expenses, hire new employees, expand the business, handle an emergency, or for any other business opportunity.  The flexibility of a line of credit for a cannabis business operator is a tool that every farmer should have in their belt. 

Merchant Cash Advances or Short-Term Working Capital Loans

If your cannabis business is not profitable and you have not been in business long, you may consider applying for a merchant cash advance.  A cash advance is also a good option if you have a low credit score and do not qualify for other loan options available in the marketplace.  Cash advances and short-term loans differ from other loan options in that most do not have an interest rate.  A cash advance is structured as a purchase and sale of your future income and comes with a multiplier known as a factor rate (or factor fee) instead of an interest rate with a longer term loan. This factor rate is a one-time fee that is added to the cost and split up evenly over the term of the cash advance.  Like interest rates, your factor rate is typically determined by a combination of underwriting factors such as the performance of the MRB, the borrowers personal and business credit histories, time in business, profitability, and debt service coverage ratio.

Merchant cash advances funds can be used for any business purpose and does not come with a pre-payment penalty.  Most cash advance lenders will offer a pre-payment discount encouraging you to pay off the advance early. One of the benefits of short-term loans and cash advances is that you often receive money quickly. Some lenders like Upwise Capital provide funding options in as little as 24 hours, while others may approve and fund your loan in 3 to 5 days depending on the file.  In a way, you are paying for the convenience of having the funds wired into your business bank account within a few days.  Most merchant cash advances often have high interest rates and shorter repayment terms.  Terms typically range between 3 months and 24 months.  Payment structures can vary between daily, weekly, bi-weekly, and monthly payments.  Therefore, it is important do your homework to find a lender with the best rates, pre-payment discount and terms in the market.

The lender pays you a lump sum amount, and a factoring fee is added to the amount of the loan. Other fees like underwriting fees and origination fees may also be added, so make sure to read your agreement carefully.  Payment are usually made via ACH and are automatically withdrawn from the business bank account on a regular basis.  This is not something you will have to write a check for.  Track your payment schedule to the lender to make sure all fees have been repaid once the loan balance is paid in full.

Some merchant cash advances have fixed payments and others have variable payments. Others deduct a specific percentage of your sales based on credit card processing or bank sales. In other words – when sales are up, your payment is higher and when sales are down, your payments are lower.  There are many benefits to working with cash advances lenders to secure the financing you need for your cannabis business or marijuana dispensary.  In conclusion, the benefits include quick funding process, flexible payment options, no pre-payment penalty, pre-payment discount, and flexible use of funds.  A short-term loan or cash advance from Upwise Capital can be the right fit for your businesses needs.