Types of Loans Cannabis-Related Businesses Need

If your financial institution’s cannabis banking program is growing, it’s time to evolve past just accepting deposits. Due to the growing cannabis industry’s increased demand for startup and working capital, financial institutions that choose to lend to these businesses have an opportunity to grow their programs while opening up a healthy new revenue stream.

Why cannabis-related businesses need funding

CRBs need access to capital to take advantage of growth opportunities within the cannabis industry. Some of the major reasons CRBs seek out financing opportunities include:

• Real estate: Cannabis operators need a business address before their license is granted. Retailers may pay rent for months before opening their doors, or opt to acquire real estate. That’s a significant investment that requires an immediate need for capital.
• Construction: From hiring architects to ordering signage, retailers, manufacturers, and cultivators need capital to to quite literally lay their operation’s foundations.
• Licensing costs: Acquiring licenses to operate can be expensive. For example, in New York, application fees for a cultivation license can cost $65,000 or more depending on the size of the facility.
• Working capital: Marketing costs, utilities, HR and payroll — CRBs have operating costs just like any other business. Cannabis operators may look for working capital loans to support these day-to-day needs.
• Equipment: Cultivators and manufacturers require expensive equipment to produce their goods. Many of these machines can cost five figures or even six figures to buy, install, and maintain. Larger facilities require more capital for more equipment.
• Expansion: Successful cannabis operators may look to grow their footprint or open new locations. Operators need capital to fund buildouts, additional equipment, and secure real estate required to support these efforts.

If financial institutions continue to refrain from lending to CRBs, then private capital will continue to make all the rules in this space. Private lenders are not as highly-regulated as an institutional lender would be. The opportunity therein is to lend directly, at an industry-specific, risk-aligned premium. Your financial institution’s loan products will still be attractive to CRBs with that premium. The lending offering is likely just as compelling to the CRB given how harsh the environment – and repayment terms and interest rates – have become due to private lending practices. If more financial institutions step in to lend to cannabis businesses, everyone wins.

Launching a cannabis banking program for the first time? Learn about offering basic banking services like checking accounts, ACH, and wires as well as loan products. Read our guide on how to build a profitable cannabis banking program.

4 types of business loans your financial institution can offer CRBs

If you want to grow your financial institution’s book of business in the cannabis industry, consider extending these lending options to cannabis operators in your network.

1. Term loans

Term loans are suitable for CRBs with large upfront costs, such as applying for their license or expanding into a second manufacturing facility. Accepting a term loan provides liquidity and stability to a qualified CRB.

For lenders, term loans offer CRB’s clear repayment terms on a reliable schedule. They’re also an introduction to other financial products as the business grows. CRBs appreciate term loan options because the costs of interest and repayment are clear.

2. Equipment loans

For lenders, equipment loans are secured via the equipment itself, providing additional safeguard for their investment.

For CRBs, equipment loans are great for investing in big-ticket apparatus. The down payment and payment schedules required on these loans is more manageable than the full cost of the equipment. The equipment itself serving as collateral tends to make this a cost-effective and attractive financing option for CRBs as well.

It’s important to note that some machinery can be repurposed outside of cannabis. Equipment of this nature may be more attractive as collateral to your financial institution. It’s easier to appraise equipment your team has worked with before.

3. Commercial real estate loans

For lenders, commercial real estate loans establish a long term relationship with a CRB. For borrowers, commercial real estate loans are beneficial because they cover a large upfront investment on property and can be paid back over a lengthy period. Between real estate, licensing, construction, operating, and more, CRBs face large up-front costs to do business. The long runway to pay back the loan gives borrowers time to open, begin generating revenue, and make payments on a comfortable schedule.

4. Working capital loans

Working capital loans offer shorter repayment terms that are easy for a business to take on when they’re first starting out. Products like lines of credit may be a lower-risk option, which provide ongoing profitability through interest charges and fees. Contingent on the amount, some financial institutions even offer them as unsecured loans. They all serve to build an ongoing relationship with a growing cannabis business. With that relationship in place, you’ll likely be the company’s first call as they need other financial products.

Working capital loans help CRBs meet day-to-day expenses without interrupting their cash flow. This is especially useful for operators who supply other businesses with their products or services on Net 30 contracts or similar terms. Working capital of all kinds helps these businesses operate more effectively knowing there is liquidity available while they are awaiting payment.

How to find customers for your loan products

Cannabis operators are looking for partners they can trust. Many have been let down by predatory providers, unfavorable terms, or by institutions that decided to pull out of servicing cannabis companies. Here are some ways to galvanize your CRB banking program’s lending pipeline:

• Be transparent with cannabis operators. Share the “why” behind your lending application process, bring your cannabis experience to the table, and give rationale for needed documentation and information sharing.
• It’s crucial to build relationships in the cannabis industry. Attend conferences, trade shows, and speaking engagements to meet like-minded, trusted CRB customers. This strong referral network helps your financial institution get in front of the operators who need your loan products.
• Leverage platforms like the Green Check Connect Marketplace, the cannabis industry’s leading financial resource for operators, to get your products directly in front of an attentive audience who are ready to apply for a loan right away.

Want to dive further into lending options for cannabis businesses? Watch Green Check’s in-depth “Lending in Cannabis” webinar.

Green Check bridges the cannabis and finance industries

Whether your financial institution has already realized some success in the cannabis industry or you’re looking to build your program from the ground up, Green Check is here to help. We’ve helped more financial institutions, banks, and credit unions set up successful, compliant, and profitable programs than anyone else. From detailed information on state regulations, to unprecedented access to financial data, to a community of verified operators in need of your loan products, Green Check is dedicated to funding a profitable future in cannabis.