The legalities of cannabis lending are a little tricky. Since the plant is illegal in most states, no standard collateral form exists and every financial institution views cannabis risk differently. Consequently, some institutions treat cannabis loans as unsecured and do not require collateral, while others will require additional collateral or co-signers. As such, the best practice is to treat each cannabis loan on its own merits, and consult legal counsel before seeking funding for your cannabis business.
Real estate loans
If you are in the market for a cannabis lending for real estate loan, the first thing to do is to understand the stance of local government regulations and the industry itself. Unlike any other real estate loan, a cannabis real estate loan has its advantages and disadvantages. To find the best cannabis lending for real estate loan, make sure to have a sound business plan in place and understand the industry's regulatory framework. In the United States, banks are generally reluctant to get involved in the industry prior to legalization, due to heavy federal anti-money laundering regulations.
One of the major disadvantages of using cannabis lending for real estate loans is the hefty fees associated with it. Lending fees are pre-paid interest that can skyrocket your interest rate. These fees are often compounded each year to make up the annual percentage rate, or APR, that you will pay. This can quickly increase your total monthly payment and prevent you from getting the full amount you originally expected to.
Short-term mortgages
While most lenders say they lend in the cannabis industry, they don't always consider the business's added value. These lenders often restrict their collateral loan programs to cannabis businesses, grind the LTV down, and demand a personal guarantee. These lenders simply don't know enough about the cannabis industry to craft lending programs that support the commerce of marijuana. That means you should be aware of your options when applying for a cannabis loan.
Depending on the business model, amount of money needed, and loan term, you'll want to consider using a short-term mortgage or revolving line of credit. When comparing the costs and benefits of each, it's important to consider your credit risk profile. A lender that understands cannabis business regulations is your best bet. Fortunately, there are many options available to you. Consider applying for a short-term mortgage, a revolving line of credit, or even a cash advance.
Bridge loans
When considering a cannabis loan, be aware of the fees. Cannabis business lines and bridge loans tend to carry high interest rates. However, long-term real estate loans carry lower interest rates. Boulder Equity Partners, a cannabis lender, provides loans with low APRs. Here's a look at some of the fees that can be charged. The term of the loan is also important to note. While the term of a cannabis loan is typically less than a year, there are some situations in which this option may be beneficial.
Since the federal government does not allow banks to provide financial services to cannabis businesses, most of them do not have banking accounts. To qualify for a cannabis business loan, you must have the necessary personal and business information to provide a comprehensive application. Some lenders may require borrowers to sign an exculpatory clause or cancellation language. Nonetheless, most lenders will be happy to extend a loan to a cannabis business with the proper documentation.
Personal guarantees
If you are considering a loan to open a cannabis dispensary, you should be aware that you may be required to provide personal guarantees. Many lenders will not be willing to take a chance on a marijuana business, so they may require you to pledge your personal assets as collateral. Personal guarantees are an excellent choice for cannabis business owners, as they are less expensive and less invasive than traditional loan guarantees. If you're not sure whether you need personal guarantees, here are some guidelines.
Most banks and lenders are interested in increasing their average yield, and cannabis companies represent a lucrative marketplace for them. The actual risk is much lower than the perceived one, so lenders are more willing to work discreetly with cannabis companies. As a result, they are willing to offer lower rates and longer terms than they would otherwise. Despite the risks, personal guarantees can provide a valuable source of capital for the cannabis industry. However, beware of fraudulent lenders.
Private lenders
When banks don't offer loans for the cannabis industry, cannabis lenders turn to the private market. Private sources account for over 90% of all cannabis lending. This is because access to capital in this industry is limited and very expensive. While access to bank loans can be helpful for cannabis entrepreneurs, these loans often carry unfavorable conditions and high interest rates. Fortunately, private cannabis lenders are gaining in popularity as cannabis businesses continue to expand and become more profitable.
In addition to traditional banks, private investors are now willing to back marijuana businesses. Private cannabis investors include venture capital funds, wealthy individuals, and private equity funds. Private funds often require a minimum credit score of 500. The application process is often quick, requiring only a single phone call with a loan specialist. Once approved, borrowers can receive funding within 24 hours of submitting their application. Despite the difficulty of securing financing for cannabis businesses, private cannabis lenders are providing a critical service to entrepreneurs and their business growth.