Types of Cannabis Business Loans

Yes — cannabis operators have options when it comes to loans.

Cannabis operators need capital to make the strategic investments and purchases required to grow. And if you’re struggling to figure out where that money’s coming from, you’re not alone. Many of the funding sources regular businesses enjoy, like SBA loans, aren’t available to the cannabis industry.

The good news? You’re not out of options. If you know where to look, you can even take your pick and choose the type of funding that best suits your needs. In this guide, we’ll explore some of the most common types of cannabis financing available today and how you can secure the capital you need to expand your business.

1. Lines of credit

A line of credit provides you with a revolving credit option that you can access whenever you need it. Lines of credit are flexible sources of funding that can be used as working capital or to make strategic investments, giving operators a high degree of latitude over how to use them.

For a small annual fee, you’ll have access to a predetermined amount of money that you can borrow from — or choose not to borrow from — over the course of your agreement with the financial institution, typically for one year. This financing option comes with an attached annual percentage rate (APR), which is an interest rate adjusted for current market conditions. You only pay the interest rate on the money you borrow. Some financial institutions may have minimums or limitations on using the funds, but others let you borrow as needed.

For example, if your financial institution offers a line of credit of $100,000, you’re not obligated to use that money. You simply have access to that amount of money. If you decide to borrow $10,000 on May 1st, you’re only responsible for paying back that $10,000 plus accumulated interest, calculated based on the market conditions at the time of repayment. Until the $10,000 is repaid, you’ll have access to the remaining $90,000 for other expenses. When the $10,000 is repaid, you’ll have access to the full $100,000 again.

2. Term loans

Term loans are fixed-rate, fixed-payment loans that provide you with a lump sum of capital you can use to fund your business. A term loan must be repaid in regular installments, typically monthly, over a predetermined amount of time set by your financial institution. Generally, term loans are associated with specific investments, such as facility renovations or equipment purchases. Your financial institution will likely ask you how you plan to use the funds, along with other financial reports that help the financial institution determine your ability to repay the loan. Cash flow is one factor your financial institution might look for in the term loan application process.

An example of a term loan would be a $100,000 loan repaid over 12 months at an interest rate of 10 percent. You’re able to use that $100,000 instantly to make investments in your business, but you’d be required to pay back $8,791.59 monthly in 12 installments.

These term loans can be secured or unsecured depending on the requirements of the financial institution. For example, a term loan for equipment would likely be secured by a lien on the equipment being purchased.

In the case of a secured loan, if you default on the loan or you’re unable to repay, your lender would be able to seize the collateral as repayment.

With a secured loan, you may expect interest rates to be lower than an unsecured term loan. However, in the cannabis industry, rates tend to be a bit higher than those in other industries, even for secured loans.

3. Commercial real estate loans

Commercial real estate loans are specifically for acquiring a building, like a retail location or a grow facility, or for major renovations and build outs. For cannabis businesses, cultivators, manufacturers, and retailers could all benefit from real estate loans, especially since securing a location is a prerequisite for getting a license in many states.

When a borrower obtains a commercial real estate loan, they are putting the property itself up as collateral. This means that you must have ownership rights to the property you are acquiring, renovating, or building. You cannot offer up the location you’re renting as collateral.

These loans are generally longer term, amortized monthly and interest rates can be more favorable than other types of loans because of the reduced risk of meaningful collateral. They will also involve a longer approval process and additional steps, like a real estate appraisal or a site evaluation.

4. Credit cards

Major cards like Visa and Mastercard explicitly do not allow cannabis transactions on their networks. That doesn’t mean every business is left out of accessing credit cards as occasionally you’ll find a credit card option for your business, or you can obtain a personal credit card under your name to be used for the business. This is only advisable if you are an owner, since employment is not guaranteed and you don’t want to be left responsible for company debt should you no longer be employed. Ancillary companies like professional service providers are more likely to be eligible for a credit card through their financial institution.

Credit cards are typically pretty easy to apply for, and you’ll have a decision from the issuing provider quickly. Once you have the card in hand, you can use it whichever way you need to with the exception of marijuana purchases, like inventory. On the other hand, interest rates are quite high on credit cards, which may put you into more debt if you’re not vigilant about its use and ongoing payments.

To learn more about cannabis financing and how it works, check out our guide to cannabis lending.

What about alternative lenders?

Since traditional lenders are not as prevalent in the cannabis industry, there may be an opportunity to work with an alternative lender who does debt financing in this space. Companies like BitX or FundCanna are examples, and they each have their own options and areas of expertise. These providers may even consider non-traditional loan types like invoice factoring, which typically are not available at financial institutions.

What about private equity?

For many years, private equity was one of the main ways cannabis companies obtained the cash they needed to grow. Around $796 million in private equity was invested in the cannabis industry as of 2023, a figure that decreased from $3.82 billion just two years earlier.

Private equity has stepped up to serve the cannabis industry where conventional banks and credit unions have been hesitant. For many business owners, though, the idea of giving up a portion of their business in exchange for their money, called equity, is less than ideal. As you grow and become profitable, a portion of your profits will go to the private equity firm in exchange for their initial investment. That can be a big risk to take.

Now that more traditional financing is becoming more readily available, many operators are able to turn the equity finance into debt financing and release those obligations.

Borrowing from friends and family

Turning to your own network to fund your company may not be your first choice, but it’s a common one for many kinds of business owners. Around one-fifth of all business owners turn to friends and family to help fund their enterprises, at least in the short term.

However, going this route comes with downsides. You may put your relationships at risk if things don’t go well. It’s also not a good idea to rely on this kind of financing as a long-term solution, as you’re missing out on building critical relationships with a bank that can help you grow with traditional lending products.

Can you crowdfund your cannabis business?

While it’s not the typical route, it’s not unheard of for cannabis companies to turn to crowdfunding. Through crowdfunding, you ask the general public to contribute to your operating costs. In exchange, you’ll offer a special deal or perk, like early access to your retail location, exclusive products, or recognition like your name in the lobby of the dispensary.

There are also crowd investing options like AngelList and MicroVentures that may be an option, depending on whether or not you fit within their risk tolerances around cannabis businesses.

Do your research before crowdfunding or crowdinvesting. First, you have to make sure the platform you’re using is cannabis-friendly. Not every platform is receptive to cannabis businesses, and there are some industry-specific platforms, like FundCanna, that may be worth looking into. You also need to make sure that you’re prepared to deliver on your promises and ensure contributors or investors are able to get what they’re expecting.

Preparing to apply for your loan

Once you connect with a cannabis financial services professional, you’ll want to have your paperwork in order for a smooth application and approval process. We recommend reviewing these required cannabis banking documents and getting the necessary information together before approaching a potential lending partner.

Be prepared to provide full transparency into your company’s finances as well as your own personal finances since it is not unusual for a financial institution to ask for a personal guarantee of the loan Doing so can build trust with a cannabis financial service provider and get you access to the services that will help you grow.

It’s also a good idea to brush up on your finance lingo. There’s a lot of jargon that comes with applying for loans, and it’s extremely important that you understand what you’re agreeing to when it comes time to sign on the dotted line. Before your first meeting, check out our cannabis finance dictionary so you can decipher even the most obscure terms that may come up. And if you have questions, don’t be shy — the right lending partner will answer any questions you may have.

Finding cannabis financing through Green Check Connect Marketplace

It’s no longer as difficult as it once was to get funding for your cannabis business. As the cannabis industry matures, more financial institutions are offering their services to legal cannabis businesses. Still, you may have encountered financial institutions that have turned you away — that’s where Green Check comes in.

The Green Check Connect Marketplace is a community of cannabis-friendly financial institutions ready to network with verified legal cannabis businesses like yours. Green Check Connect brings cannabis operators together with vetted banks, credit unions, lenders, insurance brokers, payroll providers, payment processors, and other financial service providers eager to work within the industry. When you become part of the Green Check Connect marketplace, you won’t have to worry about being turned down simply for working in the cannabis industry ever again.

Improve your access to capital with Green Check

It’s our mission at Green Check to strengthen the bond between the finance and cannabis industries. For legal cannabis businesses to continue growing, access to the financial services other industries take for granted is necessary. But cannabis professionals and entrepreneurs have enough to worry about running their businesses — so we’ll do the heavy lifting for you. If you want to take the difficulty out of finding the cannabis-friendly financial services your business needs, get started with Green Check today.