Cannabis financing options are on a huge trend now. With so much advancement in this nascent industry, it only makes sense that the lenders serving it allow commercial operators to fund themselves. Lenders understand how difficult it is to finance cannabis businesses. But even if you have been running a cannabis business for many years, you may not be aware of all the financing options available to cannabis businesses.
You must also be curious to know the benefits of financing in the cannabis sector. It will help you free up more of your cash on hand to allocate towards other aspects of your operation. We will discuss more of these business loans in this article. If you are looking forward to optimizing your cannabis financing options, contact Upwise Capital Today to learn more about business loans for Cannabis.
Available Financing Options
Experts state that conventional financing for cannabis is not always feasible. Industry’s norms and strict regulations halt the process for small business loans for cannabis startups and dispensaries. Getting a business loan for a dispensary could be easier, but it has become a significant issue for these drugs. Since federal law prohibits small business loans to cannabis businesses from federally regulated institutions, legality at the state level doesn’t matter.
There are two types of financing options available to start a cannabis business. One is debt financing, and the other is equity financing. You will finance your business by taking out a loan or using a business credit card with debt financing. You will then repay the lender the amount borrowed plus interest. However, equity financing is a bit different. It’s about exchanging shares of your company for the capital you need. A lender is an investor who gets their investment back in dividends or profits after the business is sold. For equity financing, the company already exists and has value. But debt financing using loans and credits is the choice for most new cannabis startup executives.
Let’s Discuss Invoice Financing
Sponsorship of cannabis bills is becoming increasingly popular. Many cannabis businesses have long delays in opening bills. This often means waiting 30 to 90 days for payment on open bills, resulting in late cash. Cash flow lag is a serious problem for cannabis, as the business has to wait for the balance. With bill funding, cannabis businesses can get partial refunds for unpaid bills. More often than not, we see cannabis brands, growers, distributors, and manufacturers using sponsorship bills. But ancillary companies also use it for flexibility and consistent cash flow benefits. With bill financing, the only accrued interest comes from funds. You will be able to borrow up to 90 days with a fee of approximately 2.5-3.5% of the invoice amount. After that, fees are assessed every 30 days.
Another Available Option Is Inventory financing.
Inventory finance is a short-term loan that cannabis equipment financing can secure using their inventory as collateral. This sort of financing helps your company’s cash flow by providing capital to buy more inventory or cover other expenses. Your lender will be responsible for paying your vendors. Then you can get cash-on-delivery (COD) pricing, which will help you save money as you grow your company.
Cannabis cultivators, distributors, brands, dispensaries, manufacturers, and auxiliary businesses can access flexible financing through inventory finance, which encourages strong vendor relationships and discounts. You’ll ensure that your vendors are paid directly using the inventory finance approach, with interest accruing as you use the funds.
Common Cannabis Business Financing Options
Equipment Leasing for Cannabis Operations
Producers wishing to purchase agricultural equipment can access special financing. Equipment rental is becoming increasingly popular among cannabis growers, who prefer to avoid buying equipment right away. These leases typically have an interest rate of 8 to 20%, with terms ranging from one to seven years. This is a quick option, with leases usually available within five to fourteen days.
Cash Advances for Dispensaries & Other Cannabis Businesses
Finding the money that dispensaries require can be difficult. Cash advances can really shine in this situation. Unlike a loan, dispensaries must show solid revenue to secure a cash advance. Factor rates range from 1.30 to 1.49 over periods of four to twelve months.
Funding is accessible fast, usually within one or two days. This option is available for dispensaries that need to raise short-term capital quickly. However, the cash advance is one of the most expensive options, so we recommend using it only if you absolutely must.
Cannabis Financing Solutions From Upwise Capital
There are numerous financing options available in the cannabis industry. However, having the proper documentation and building connections throughout the sector is crucial. Do you want to organize your company’s finances such that borrowing is always an option? For experienced assistance, contact Upwise Capital today.
