The best way to obtain a business loan for your cannabis dispensary

March 3, 2024
credit cards thc marijuana processing

Financing your dispensary is often the most difficult part, especially if you don't own a cannabis business or operate in multiple states.

Cannabis business owners often face challenges when dealing with banks due to the absence of SAFE Banking or federal legislation.

Obtaining a cannabis loan is much more difficult but not impossible.

Here are the requirements for obtaining funding for your dispensary.

What makes loans for cannabis different?

Cannabis occupies a special place in the credit market. But unfortunately, few banks are willing to cooperate with dispensaries, leaving only very few private lenders.

Additionally, interest rates are typically higher than in other businesses, as are collateral requirements.

This is more likely the result of supply and demand principles than federal law. There is less downward pressure on pricing since there are fewer sources of capital.

Although dispensaries don't have the same alternatives as more conventional retailers, getting a loan is still doable.

Every month, new cannabis finance solutions enter the market; all you need to do is know where to look.

Common Loan Types

There are various financing options available for different types of cannabis businesses depending on their current financial needs. The most popular loans that a cannabis firm can apply for are listed below.

Finance for inventory

Short-term loans or revolving lines of credit are both examples of inventory finance. Cannabis businesses employ this method of financing to buy things to sell later.

Dispensaries can benefit from this type of financing if they need to pay suppliers for stock that will be kept on hand for future use.

The inventory you want to buy is a security for this loan.

Due to rising debt, this strategy may be stressful for newly established businesses or dispensaries already in debt. One thing that can drastically help your dispensary is by using Sprout Processing as merchant processing for your dispensary. Our credit card solution for the cannabis industry is helping dispensaries during these times of inflation.

Working capital credit line

Businesses use a working capital line of credit to pay for expenses like inventory, wages, and rent.

You can borrow a certain amount of money with this line of credit, but you need to pay it back within a specific time.

Like a credit card, you only have to pay back the amount of a line of credit you use.

You can use the credit line when you need it, and you have a certain period of time to repay the borrowed money, along with interest.

This option can be advantageous for dispensaries that experience fluctuations in cash flow or have a seasonal sales pattern.

We help dispensaries become more profitable. With our cannabis-friendly ATMs, we provide profit sharing for your dispensary to help you make more money.

Term loan

A term loan gives cannabis business borrowers an upfront lump payment for adhering to certain loan conditions.

To lower the overall cost of the loan, borrowers frequently make an early down payment. They also agree to return their loan (plus interest) within a specific time frame.

Small, well-established cannabis firms that require additional funding for expenses like expansions can benefit from term loans.

Advances to Merchants

For small firms, a merchant cash advance is an alternative to conventional bank loans. A cash advance provider gives the company owner a significant sum of cash upfront.

A portion of the company's sales is used to pay back this amount.

These loans are simple to obtain, adaptable and don't require good credit or substantial collateral.

However, merchant cash advances can interfere with business operations and are expensive.

When dealing with cannabis, some suppliers include a lien on their operating license. Be careful when dealing with these vendors. The potential impact on your company's operations might not be worth the risk.

Options for Common Cannabis Business Financing

Getting a loan can be easier for regular businesses, but dispensaries often have to be creative since banks are reluctant to work with cannabis. The standard financing options dispensaries often employ to fund their operations are listed below.

Option 1: Collaborate with someone

For financial institutions, organizations like Green Check, Abaca, Safe Harbor, and others offer cannabis banking solutions and professional advising services.

They assist with establishing reliable connections between legal cannabis business owners and financial institutions to help your company grow while reducing the time, cost, and risk involved in maintaining compliance.

Look for a partner who specializes in cannabis banking to help secure a loan if you are a new dispensary or have tried all other financing options.

Option 2: Carry out independent research

You can research to find a bank that can fund your dispensary account. To find plenty of online information about banks and credit unions that work with cannabis, you simply need to know where to look.

Although you may not be able to obtain a small business loan online, you will still find useful information that will help you when the application process starts.

Finding a bank that loans to dispensaries doesn't mean you've secured finance; you need to register your business and apply.

Apply for social equity loans as a third option.

Find programs for social equity!

The Complete Manual for Dispensary Social Equity Programs

Social equity loan programs are a terrific resource for firms that require additional funding if you are eligible. However, the most excellent loan programs might be challenging, so finding the perfect one requires a thorough internet search.

You can get lower interest rates or even interest-free loans by getting a social equity line of credit.

Option 4: Locate family and friends

Many dispensary borrowers discover that the people closest to them have the financial resources to start their dispensary.

Many firms receive assistance from folks in their immediate vicinity who already have a stake in their success.

Talk to your family and friends and show them your company idea. Make sure to act professionally, prepare well, and remember that lending money to friends and relatives carries risk, just like dealing with a financial institution.

Don't forget, credit cards are the holy grail of retail. Accepting both debit and credit card payments at your cannabis store can lead to higher customer spending!

Dashboard reviewing compliant credit card processing for dispensaries.

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