The cannabis industry is poised for growth. Right now, 33 states approve the use of marijuana for medicinal purposes, while 10 approved the drug for recreational purposes. Those numbers are sure to increase over time.
This is the best time to start or grow a cannabis business. The biggest barrier to entry for most businesses is money. It takes thousands of dollars to purchase new equipment, invest in inventory, hire employees, and market the business.
If you want to know how to grow your business, you have to look at financing. Unfortunately for cannabis businesses, it’s not as simple as running over to your local bank and getting a loan.
Marijuana is still illegal under federal law. That makes it illegal for banks to work with cannabis businesses. You have to find alternative financing solutions
This article gives you the information you need to grow your cannabis business. Read on to learn all about your financing options.
1. Assess Where You’re At
Your business has to be financially healthy to get a loan. If you’re borrowing money to make ends meet, you’re digging a deep financial hole for yourself.
Take a close look at the financials of your business. Spot the areas where investments would make the biggest difference to your bottom line.
2. Have a Business Plan
You usually write a business plan to start a cannabis business. The business plan goes untouched for years.
It’s time to revisit your business plan. This allows you to create your path and learn how to grow the cannabis business.
You’ll put your theories and assumptions to the test in your business plan. You should research the market to see where the best growth opportunities are and will be in the future.
Make sure that you run the numbers. It’s important to have a plan for the loan money, know what the risks are, and plan to pay the loan back.
3. Learn About Financing Options
The U.S. House passed a bill that allows banks to legally work with cannabis businesses. It hasn’t passed the Senate yet, and it’s unclear if it will this year.
Until then, you’re stuck with limited financing options that fall outside of traditional methods, like a Small Business Administration loan.
You could work with friends and family. You probably have a wide network of people willing to help you grow your business.
Of course, you have t be careful with these relationships. Always set out clear expectations for you and your friends.
Crowdfunding sites like Fundanna and CannaFundr emerged as other financing options. These sites make selling ownership equity easy.
Private equity funds see the opportunity to invest in cannabis businesses. Many offer real estate acquisition loans and equipment leasing.
To learn more about lean underwriting and getting a loan approved quickly, this site has an in-depth look https://www.heffinance.com/cannabis-business-loans.php. Leafly is a good resource for cannabis businesses as well.
4. Work With a Reputable Lender
This is an important step because the wrong lender could bring down your business. There are thousands of lenders out there if you just do a simple search.
How can you tell if a lender is a reputable lender? You should start with your local cannabis community. Talk to other business owners who understand the financial challenges and see if they have recommendations.
Your accountant or attorney might know of lenders that work with cannabis lenders. You should interview them and research them online.
Check out reviews online. You can take your research a step further to see if there are any legal proceedings against the company or the owners of the company.
5. Understand Loan Terms
Even if you have a reputable lender on your side, you could still get a loan that doesn’t serve your business needs.
Do you know the difference between a secured loan and an unsecured loan? A secured loan is guaranteed by some form of assets in case you default on the loan. This includes real estate, inventory, and savings accounts.
You should see if there are personal guarantees on the loan, meaning you’d be responsible for the loan if the business fails.
An unsecured loan is like a credit card. You have a higher interest rate on the loan, but you don’t guarantee the loan with
You should also budget for the loan payments. Know how much they are, how often you pay, and how long the payment terms are.
For complex financing deals, you may want to get an attorney to review the contract.
6. Have a Financial System in Place
Before you accept the loan, you need to have a financial system in place. You want to know exactly how the funds get spent and how they help your business.
You can start with a spreadsheet and keep track of your financing that way. This lets you see exactly what you spend the money on.
It helps to switch to a bookkeeping system to see how the spending translates into more revenue for your business. For instance, if you invested the funds into a larger space, you’d want to see how the capacity improved metrics.
The most important metrics to track are average ticket sales and customers per hour.
How to Grow Your Cannabis Business: Get Legitimate Financing
With so many businesses preying on cannabis business owners, it’s impossible to know what your real financing options are.
This guide should give you hope to figure out how to grow your cannabis business and find the financing options you need. With the right financing in place, you’re well-positioned to have a long and successful business.
For more entrepreneurial insights, be sure to read the other great articles on the blog today!