Cannabis Financing Pros & Cons | Detailed Analysis Breakdown
If you are an entrepreneur or business owner in the cannabis industry, you are likely thriving. Cannapreneurs throughout the US are pulling in massive amounts of revenue off of this booming market. With long-time legal grips loosening, commerce has exploded. Right now is as good a time as ever to be in the business of cannabis. But what about cannabis financing?
With all the upsides there are some difficulties as well. While many states have opted for legalization, the federal government still classifies the substance as illegal. The diverging classifications between federal and state governments have bred many problems, most notably the issue of financing.
All businesses need funding to operate, and cannabusinesses startups are no different. Here are the pros and cons of obtaining marijuana financing for your business.
Con: Traditional Cannabis Financing Obstacles
The first con on the list has to do with traditional financial institutions such as banks and credit unions. This country is heavily reliant upon big banks. Businesses across the United States use them as a resource for acquiring loans. The problem is that the federal reserve funds banks. Therefore they do not adhere to state policies but federal ones. In the eyes of the bank, a business-funded through cannabis sales is running an illegal operation. Because banks view cannabis-related business as illegitimate, cannabis business owners can’t obtain loans from these institutions.
Despite the recent SAFE banking act, these institutions still refuse to work with cannabis-related parties due to the risk they pose. Say a bank gave you a loan for your cannabis operation, which runs in a state where marijuana is recreationally legal. Then, suddenly voters decided to reverse their initial stance and make it illegal to sell marijuana recreationally. Your business would go belly up, and the bank would take a massive loss on that capital.
Pro: Range of Alternative Financing Options
At first glance, it may seem that an entrepreneur has very few options for marijuana financing. However, there may be more options than you think.
Banks’ inability to work with anyone related to the cannabis industry has left a gaping financial hole for businesses that need funding. This hole has presented a massive opportunity for alternative lenders. Alternative lenders are privately owned institutions that provide funds to small businesses. These lenders have always been a place that people turned to when they could not receive a loan from a bank.
Since the federal government does not back alternative lenders, don’t face the same restrictions. Alt lenders are free to work with riskier parties and to overlook things such as poor credit. They are also free to work with cannabis-related entities.
A massive benefit of working with an alt-lender is the number of financing choices that you have. With a bank, you are often limited to very few options regarding the form in which you receive your capital. You are mainly limited to long-term loans.
With alt lenders, you can secure short-term loans which have favorable repayment periods and low rates.
Pro: Cannabis Line of Credit
You can obtain a line of credit. This functions as capital that you can instantly acquire any time an unexpected cost presents itself. This way, you won’t be penalized for borrowed funds that you don’t use.
Pro: Cannabis Cash Advance
You can get a cash advance by leveraging your monthly sales to put money in your pocket.
Pro: Cannabis Invoice Financing
You can utilize invoice financing. Invoice financing is an especially effective tool for cannabis business owners. Because businesses in this industry rely entirely on cash, it can slow everything down as wait periods are created by actually transporting physical assets. If you know you’ve got money coming your way but need to pay for something now, you can put up your accounts receivable and receive a loan up to the total amount.
As you can see, one of the biggest pros of marijuana financing is the plethora of options available to you via alternative lenders.
Con: Loan Amount
While alt lenders do have many benefits, one major drawback is the loan amount. By and large, banks are more adept at giving out sizable loans than alternative lenders. Bank loan amounts average at $350K, while alt lending amounts average at $80K. But this is also a double-edged sword as bank loan minimums are typically at $50K. Many small businesses out there aren’t always looking for massive amounts, which is especially true if you are a cannabis startup. It also doesn’t necessarily mean acquiring a higher loan amount with an alt lender is impossible. Some sources can give out amounts up to $1 Million.
Pro: Timeline of Cannabis Financing
One major advantage of marijuana financing through alt lenders is acquiring the capital in a brief time frame. For example, BitX Funding, the premier source for online lending, can get you your funds in as little as two days.
It’s essential to get your marijuana financing fast. The reason for this is that costs often jump out of nowhere. Since all sales and transactions use cash, there can be massive delays between money made through sales and cash on hand for business-related spending. For example,
needing to replace a piece of outdated or broken equipment.
Purchasing additional buildings for an expansion
A push in marketing costs for a new product line.
Costs such as these can be substantial, and they will place a massive strain on any business owners operating budget. Day-to-day costs don’t ever go away, and most businesses walk a very tight line between managing those expenses. So, being approved and having a loan amount deposited within a matter of days is immensely beneficial.
Con: “Established Business” Cannabis Financing Obstacle
One major con associated with marijuana financing is the issue of foundation. While alternative lenders are extremely lenient with their loan requirements, they do still have some requirements. Most notably, your business must have existed for at least one year before applying for the loan.
Suppose you are looking to build a cannabis business from the ground up. In that case, you will have a challenging time finding someone to finance you. The age-old saying rings true here: you must have money to make money. Another stipulation for receiving an alt loan is that you must prove that your company pulls in a minimum of 100K annually.
These minimum requirements might serve as a deterrent to some would-be cannapreneurs. But they ensure that you are serious and fully invested in the vision for your company before anyone else stakes their finances on your behalf. In comparison to the requirements of a bank loan, these requirements are pretty minimal.
Pro: Judgement Free Partners
Alternative lenders like BitX are more than happy to fill in the gaps in areas where banks have fallen short. We understand that small businesses are the backbone of this country. They are the backbone of our economy. Cannabis businesses are no different. These companies employ very hard-working individuals who face stigmatization from people who may not think working in the cannabis industry is real work. Luckily, when it comes to marijuana financing through bitx, you will receive no such stigmatization.
At BitX, we are the leading online marketplace where business owners from all over the country come to acquire loans. We will provide top-of-the-line cannabis financing for your business, and we’re more than happy to do it. Together we will find the optimal loan for your specific needs and goals. Apply for a cannabis business loan with BitX now!