Getting financing for a cannabis business can be a challenging endeavor since many lenders are unable to lend within the industry due to state and federal regulations. However, there are a few ways to secure funding for a cannabis business depending on your needs.
We’ve compiled a list of potential financing options that may be able to help you get funding for your business. Keep in mind, such offerings may not be applicable to your operations, and cannabis business owners should be aware of financial and legal considerations of the cannabis industry before proceeding.
Financing Type | Financing Description |
Business Loans | Are offered by lending institutions and can be used for various business expenses |
Equipment Financing | Provides financing in the form of loans or leases to obtain equipment for business operations |
Friends & Family Loans | Are sourced directly from friends and family and are less formal than traditional bank loans |
Private Lenders | Are issued by private investors who are willing to finance loans outside of a bank |
Merchant Cash Advances | Are a short-term financing option that allows a business quick access to working capital |
Crowdfunding Campaigns | Are funds raised via a platform that allows interested investors to partake in funding a business |
Angel Investors & Venture Capitalists | Are investors who provide capital to a business to aid in growth, typically in exchange for equity |
1. Business Loans
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 8% to 20% |
Loan Amount | Varies |
Loan Term | Up to 10 years |
Repayment Schedule | Monthly |
Funding Speed | 1 to 4 weeks |
Typical Qualifications | |
Credit Score | 600 recommended |
Annual Revenue | Varies |
Time in Business | 0 to 24 months |
When getting a business loan within the cannabis industry, there may be a limited number of lenders able to issue funding to qualified cannabis businesses legally. This is mainly due to state and federal regulations imposed on some banks. However, depending on where your business resides, lenders such as credit unions can issue financing. This option may be best suited for borrowers who are looking to utilize a local lending institution and want a standard business loan structure.
Availability of cannabis loans will vary based on state regulations; however, if there is an applicable lender that offers such loan programs in your area, consider whether it fits your budget and applies to your business. Just keep in mind, qualifications and loan offerings will vary per lender, but it’s best to meet their minimum requirements to ensure better odds of approval.
Cannabis business loans tend to have higher rates and fees and stricter qualification requirements, so it’s best to prepare accordingly. Check out our guide on how to get a small business loan to help you with the application and approval process.
If you’re looking for a place to start your search for a provider, visit Clarify Capital, a broker that has lenders in its network and that offers cannabis dispensary loans.
2. Equipment Financing
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 7% to 30% |
Loan Amount | Varies |
Loan Term | 1 to 10 years |
Repayment Schedule | Monthly |
Funding Speed | 1 to 7 days |
Typical Qualifications | |
Credit Score | 600 |
Annual Revenue | Varies |
Time in Business | 0 to 24 months |
Equipment financing is an option for businesses strictly in need of acquiring equipment assets. Whether you’re looking for a loan or lease for the equipment necessary for your operations, this type of financing can provide a cannabis business with machinery, vehicles, office equipment, and more. A loan can help you purchase an asset if you plan to utilize it long-term, while a lease may be more suitable if you only need an asset for a limited amount of time.
Not all lenders offering equipment financing will be eligible to fund a cannabis business. However, it’s worth comparing providers and their industry limitations to find one that fits the bill for your business goals. Rates, terms, and qualifications will vary per lender and can fluctuate depending on your financing needs.
If you plan to apply for cannabis equipment financing, you should ensure you have decent credit and strong business financials. You can generally find lenders issuing equipment financing from banks, credit unions, brokers, or private lenders. You can read our guide on the best equipment financing companies to determine if any lender meets your business needs.
3. Friends & Family Loans
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 3.64% |
Loan Amount | Varies |
Loan Term | Varies |
Repayment Schedule | Daily, weekly, monthly, annually |
Funding Speed | Varies |
Typical Qualifications | |
Credit Score | None |
Annual Revenue | None |
Time in Business | None |
For business owners looking to obtain financing outside of a traditional lender, they may be able to approach friends and family to source funding for their cannabis business ventures. This is a less formal way to get access to capital and may be suitable for cannabis businesses with limited financial resources since there are no designated qualification requirements.
Notably, friends and family loans still have regulations that will need to be followed. This includes applying an applicable federal rate (AFR), which is set by the IRS. Rates can vary depending on whether your loan is considered to be short-, mid-, or long-term. These rates are generally favorable compared with traditional lenders, and overall loan structures can provide a great deal of flexibility for the borrower. Details such as the repayment schedule, loan amount, and loan term can be defined by the borrower and the participating friends or family members.
While there’s no designated approval or application process with this method of financing, you should still prepare a business plan and demonstrate how you expect to repay the loan. This is to ensure that you make good on your friends and family’s investments and don’t put your personal relationships in jeopardy. For further details, read our article on raising money from friends and family to fund your business.
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4. Private Lenders
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 5% to 25% |
Loan Amount | Varies |
Loan Term | Varies |
Repayment Schedule | Weekly, monthly |
Funding Speed | 2 to 4 weeks |
Typical Qualifications | |
Credit Score | Varies |
Annual Revenue | Varies |
Time in Business | Varies |
Private lenders can provide funding to cannabis businesses outside of the traditional lending practices of a bank or credit union. Usually, it involves private investment funds, business development companies, private real estate trusts, and so on. That said, this allows a level of flexibility with regard to loan amounts, interest rates, and repayment terms based on the preferences of the private lender.
This can also benefit the borrower in that qualification requirements may be more flexible. Factors such as credit score, revenue, and time in business can vary based on the potential of the business and the qualification criteria set by the lender.
When approaching a private lender, be prepared to furnish a solid business plan that demonstrates the structure, operations, and growth trajectory of your cannabis business. This allows the lender to determine whether they are willing to take a chance on the business and set loan terms accordingly.
5. Merchant Cash Advances
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 1.10x to 1.50x times the loan amount |
Loan Amount | Up to $1 million |
Loan Term | 3 to 24 months |
Repayment Schedule | Daily, weekly, monthly |
Funding Speed | 1 to 5 days |
Typical Qualifications | |
Credit Score | Varies |
Annual Revenue | Varies |
Time in Business | 6 to 12 months |
A merchant cash advance (MCA) allows you to get quick access to funds and is a form of short-term financing. Notably, it can be quite expensive in comparison to other financing types and often charges high APRs and associated fees. It can be a useful financial tool, though, and may be best suited for cannabis businesses needing a large sum of capital to cover short-term or emergency expenses.
It is commonly considered to be a last-resort financing option and is typically only applicable to businesses with high sales revenue, as repayment is often tied to credit card sales volume. That said, qualification requirements are often flexible depending on your financing needs and the MCA company issuing the advance.
Before applying, ensure that this is the best possible financing option for your business and that you’ll have the resources to pay it back within a short period. If you’re looking for a company, you can check out our guide on the best merchant cash advance providers.
6. Crowdfunding Campaigns
Typical Rates & Terms | |
Estimated Starting Rates (APR) | 5% to 8% |
Loan Amount | Varies |
Loan Term | Varies |
Repayment Schedule | Up to 1% |
Funding Speed | 1 to 3 months |
Typical Qualifications | |
Credit Score | None |
Annual Revenue | None |
Time in Business | None |
Crowdfunding your business is another alternative method in getting financing outside of a lender. Basically, this form of financing allows you to raise funds via a designated platform in which interested investors can partake in funding your business. There are various methods of crowdfunding, including equity-, donation-, debt-, and rewards-based. Depending on the preference and resources of your business, you may choose whichever method works best for you.
There are various platforms you can use, each of which may have its own rules, fees, and regulations. Most require you to set a funding target, and in some cases, those funds will be returned to the investors in the event this target isn’t met.
Keep in mind, you’ll also have to market your crowdfunding campaign to be successful. It can be a competitive market and, often, it’s tough to stand out from other businesses utilizing the same platform. However, it is a solid option for cannabis businesses that may not have the resources or qualifications to get other forms of debt-based financing.
You can check out our guide on the best crowdfunding sites to help you find a platform to use.
7. Angel Investors & Venture Capitalists
Continuing with other forms of financing outside of a lender, some businesses may be able to seek out angel investors or venture capitalists to support their company. Essentially, these investors can provide seed money to high-potential businesses in exchange for equity within the company. This may be best suited for cannabis businesses that need capital and would prefer to give up equity rather than take on debt. Therefore, standard rates, terms, and qualifications aren’t applicable like with traditional debt-based financing.
You’ll likely need to do some networking to find interested investors. It will take time and effort to find worthy investors who are aligned with your business goals and have the necessary experience within your industry. That said, a cannabis business owner who is looking for operational advice may be able to lean on the guidance of their investors, which may help the business grow over time.
When preparing to meet with investors, prepare a detailed business plan along with furnishing your business financials so that interested investors have a clear picture of the standing of your business. Read our guides on how to raise angel funding or how to raise venture capital funding to learn more.
Who Cannabis Financing Is Right For
Cannabis financing can be used for a wide variety of applicable business uses. It may be best suited for cannabis businesses looking to:
- Purchase or lease real estate associated with the sales, cultivation, and production of their sales products
- Acquire equipment to aid in their business operations
- Secure capital to expand an existing business or get funding to support a startup
- Invest in further development such as research, new processes, and product development
- Have access to capital to assist with business expenses—such as payroll, inventory and supplies, and other operational fees
Cannabis Business Financing & Legal Considerations
Obtaining financing for a cannabis business isn’t going to be a one-size-fits-all scenario. Depending on the needs of your business, there are various considerations that a cannabis business should take into account before proceeding with seeking funding. This includes:
- Collateral requirements: Depending on the financing type you choose, some lenders may have strict collateral requirements, which can include the inventory, equipment, and licenses of the business. Borrowers should be prepared to offer enough collateral to secure the loan, as the cannabis industry is considered to be high-risk.
- Higher rates and fees due to industry risk: There may be monthly servicing fees associated with some forms of financing, which can be expensive for businesses with limited resources. Also, cannabis loans tend to have higher interest rates than most traditional business loans, which is often meant to help mitigate the risk to the lender.
- Ineligibility for Small Business Administration (SBA) loans: Cannabis businesses don’t qualify for SBA loan programs, which are known for offering favorable loan rates and terms to small businesses needing financing.
The legal considerations of financing a cannabis business can be tricky since there are various laws regarding cannabis financing that are applicable on both a state and federal level. You should do your research within the state your business resides in to ensure compliance.
There are also federal legal considerations to keep in mind, which can be quite complicated. For a more in-depth overview of federal law regarding cannabis financing, we recommend referencing the Congressional Research Report’s marijuana banking document. However, here are some basic considerations to take into account:
- FDIC Insurance: Oftentimes, banks associated with cannabis business financing may not be FDIC insured, which can put both the lender and borrower at risk.
- The Anti-Money Laundering (AML) Act: Until federally legal, some banks may be at risk for charges of money laundering or accepting deposits from cannabis businesses. The AML Act requires that a bank report any suspicious transactions in relation to money laundering or other suspected illegal or unethical activities.
- The Bank Secrecy Act (BSA): The BSA requires that banks need to report any transactions over $10,000 and is intended to monitor and alert any suspicious or criminal activity. This report is known as a Suspicious Activity Report (SAR), and there are specific reports applicable to marijuana-related businesses (MRBs) according to FinCEN guidelines.
Frequently Asked Questions (FAQs)
Most US banks are either ineligible or hesitant to lend to cannabis companies. This is due to both state and federal regulations, which can restrict lending institutions from partaking in financing the cannabis industry.
Most big banks are ineligible to provide funding or services to cannabis businesses. You may have more luck with a local bank or credit union, depending on the state in which your business is located.
Financing options can include equipment loans or leases, merchant cash advances, and loans from credit unions, friends and family, private lenders, angel investors and venture capitalists, or a crowdfunding campaign.
Bottom Line
Getting cannabis business funding will differ from getting a small business loan from a bank. This is mainly due to the fact that cannabis remains federally illegal, and many banking institutions are federally licensed and therefore have difficulty when issuing financing specific to cannabis businesses. However, there are other financing opportunities available that may fit your business financing needs. While it may take more time and effort to find, it is doable and can be worth the endeavor to secure business financing.
