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The Best Cannabis Business Loan Options: Get the Highest Funding Amounts

December 20, 2022
Cannabis Business Loan Credit Suite

Are you looking for a cannabis business loan? Cannabis is a somewhat unique industry in that it’s still 100% illegal in some parts of the US. Whereas others have no prohibitions against it. And then a third group of states split the difference with medical marijuana.

Marijuana may eventually become legal throughout the entire country. But we’re not there just yet.

Best Cannabis Business Loan Options

Marijuana businesses can get business financing. Here are some of our favorites—and don’t forget Diamond Business Loans, Dynamic Alternative Finance, and United Capital Source, three other options.

Option 1 – Gud Capital

Gud Capital offers a variety of options to provide financing to the marijuana industry. These include private loans, equipment leasing, commercial real estate, and dispensary cash advances. These advances work like inventory loans.

Get rates of 8 – 25% and terms of 1 – 3 years with private loans. Or get real estate loans at rates of 8 – 20% and terms of 1 – 7 years. With both options you’ll have to wait several days before getting funding. Private loans can take up to two months.

You can also get a cash advance with factor rates of 1.30 – 1.49 and terms of 4 – 12 months. With a cash advance, you can receive your capital in one to two days.

Equipment funding is another type of cannabis industry financing that is almost solely focused on growers in need of agriculture equipment to help with growing cannabis. 

By using an equipment leasing company to acquire the marijuana agriculture machinery for their grow operations, cannabis companies can get critical equipment to make sure their crops flourish.

Option 2 – GoKapital Business Financing

You can get cannabis business loans that provide capital from $50,000 to $5,000,000. 

These cannabis loans are not originated by an FDIC-insured traditional bank (the Safe Banking Act is not yet law), so GoKapital can serve alternative businesses and provide cannabis business funding willingly. 

Minimum qualifications for a GoKapital Quick Business Loan are simpler than for banks and don’t create the same bars for applicants in the cannabis industry. 

When you have had your business for over four months, and have a FICO score of over 500 with annual sales of over $150,000, you’re more likely to secure a business cash advance.

You can get approval within 24 hours with immediate access to funds. They offer a 95% approval rate across their range of funding products. 

GoKapital offers merchant cash advances, a business line of credit, equipment leasing and financing, unsecured term loans, and startup loans. They will offer cannabis financing for both dispensaries and growers. 

Option 3 – iCapital Funding

iCapital Funding is an alternative lender out of New York.

They offer short and long-term loans, a merchant cash advance, a business LOC, equipment financing, invoice factoring, and private business loans. 

They have business loans from the SBA but caution that there are regulatory issues and growers, distillers, and dispensaries probably can’t get SBA loans at this time.

For a short-term loan, they either want to see good cash flow (and 3 months of bank statements) or a FICO score of 670 or better. 

To qualify for LOCs, especially an unsecured one, you’ll typically need a FICO score of 680 or better, an active business bank account, and up to 3 years of tax returns and financial statements. 

You’ll need to have 12 months in business and $20,000 in average monthly revenues.No recent bankruptcies, foreclosures, or tax liens. At times, a personal guarantee is required.

Option 4 – Bespoke Financial

Bespoke Financial offers short-term loans including LOCs for up to $5 million. But keep in mind that LOCs are only for select customers. Fees are about 3 – 4%, with no application fees.

For an extension of the terms of a loan, an applicant must make successful payments for at least six months. Afterward, the terms of the cannabis loan can be renegotiated.

While profitability is not a requirement for financing, they will ask if your cannabis company has been profitable over the previous two quarters. They will also offer shorter-term loans for startup cannabis companies.

Bespoke offers dispensary financing (a type of inventory financing) with 60-day terms. These loans are secured by inventory. All you need to do is provide point-of-sale system information. 

Currently, they only serve 11 states: Arizona, California, Colorado, Florida, Illinois, Massachusetts, Michigan, Oklahoma, Oregon, Pennsylvania, and Washington.

Option 5 – FundCanna

FundCanna offers working capital loans, equipment financing, LOCs, dispensary loans, and vendor financing.

For CBD business loans, they want to see 3 months of bank statements and year-to-date financials, in addition to a completed application. For the most part, you will not have to supply collateral.

Their vendor financing solution is essentially invoice financing. FundCanna will supply up to 80% of submitted invoices, and then the remaining 20%, minus fees, once your client pays. They will also finance accounts receivable. 

Apply for a working capital loan and get approval within 24 hours. The capital can be in your account on the same day as your approval. They will ask about your annual sales on the application.

Ancillary businesses (such as for fertilizer, or rolling papers) can get marijuana business financing, including business LOCs. 

FundCanna suggests businesses should be fully licensed and prepared to submit P&L statements, personal and business banking statements, and a debt schedule.

Option 6 – Needham Bank

If your business is in Massachusetts, Needham Bank can be a more full-service solution than many of the other options available. You can truly get cannabis banking.

Needham Bank is FDIC-insured. They offer deposit accounts, cash management services, wire transfers, and loans. 

They offer business term loans, business LOCs, and the Massachusetts Capital Access Program (CAP). The Massachusetts Capital Access Program is for Bay State businesses with fewer than 200 employees, to help with economic development.

Much like an SBA loan, the CAP program is designed to make it easier for a lender to loan to small businesses in Massachusetts. You can get up to $500,000 under CAP and virtually any type of commercial loan qualifies under the program if it is legal in Massachusetts.

Which, of course, even recreational marijuana fully is.

Typical uses of CAP are equipment purchases, start-up costs, and real estate acquisitions. The CAP program can also be used for working capital LOCs.

Get Credit Line Hybrid Financing from Credit Suite

Get Credit Line Hybrid Financing from Credit Suite

Alternative Options To Funding

Loans from a bank or a credit union aren’t the only game in town when it comes to a cannabis loan.

Option 1 – Business Credit

Business credit building is a viable financing option in that starter vendors in particular are not likely to be too picky about the industry a potential cardholder is in. 

What they mainly want to see is that a marijuana business is set up properly and can and will pay them back.

A cannabis business, just like any other business, needs a lot of the goods and services which you can get through business credit

Customer-facing businesses like dispensaries will need cleaning products and potentially tools and the like. Virtually all marijuana businesses will need computers and peripherals. Businesses will also need marketing materials.

Growers will always need fuel, so fleet cards can fill the bill and help to build a PAYDEX score at the same time. Manufacturers of paraphernalia will need tools and parts.

All of these types of expenses can be covered with business credit—and a good PAYDEX will help even cannabis companies get loans if they steer away from FDIC-insured lenders.

Option 2 – Angel Investing (Friends and Family Usually)

Friends and family financing can work well for early-stage ventures or those looking to keep clear of larger financial options. A built-in support network can help fast-track funds without the due diligence of an FDIC bank or other lender. Cannabis Business Loan Credit Suite

Angels can also be easier to convince to invest than the kinds of major crowds necessary for crowdfunding (see below) to truly succeed. And unless an angel is accredited, there are few regulations governing this form of funding. 

However, the risk of losing the investment of your inner circle can weigh heavily on operators and investors. Lost investments and unpaid debts can tear at the fabric of a family and can ruin even long-term friendships. 

Angel investors are less formal than venture capitalists (see below), and they often want a smaller share of the business in exchange for their cash infusions. But they are still partial owners, so any marijuana business owner will have to split the profits with them.

Option 3 – Crowdfunding

Cannabis ventures have found success with various platforms, such as Indiegogo and Kickstarter. The effort tends to work best with a more robust support network but can also work in other forms. 

An entrepreneur’s support and donations group can come from friends and family. But this kind of financing appeal will likely include a reasonable degree of time spent on digital marketing and public relations efforts to get the word further out. 

For cannabis business owners with large online networks, time to spare, and a gift for marketing, crowdfunding can be an appealing way to get funds without having to sell any business equity.

Depending on the platform, partially funded campaigns may get funds, but some crowdfunding platforms will restrict access to only campaign goals reached.

Entrepreneurs should also check any platform’s Terms of Service closely, in case cannabis is on their list of industries they will not work with.

Option 4 – Home Equity Loans (HELOC) and Bridge Loans

Loans borrowing against your home are often considered to be high risk. However, many operators have found success getting an LOC through a home equity loan. 

While challenging, a home equity loan often allows the borrower to qualify using a lower criteria threshold. A home equity loan typically offers a higher loan limit with lower interest rates over a longer payment window if approved.

Many lending institutions offer HELOCs. And, you can use the financing from a HELOC (generally in the form of a revolving LOC) for just about anything. This rather neatly gets around any issues with the FDIC.

A bridge loan can also work for real estate financing. A dispensary or paraphernalia shop could use such a loan to expand into a new space or refurbish an older one. There may be fewer restrictions on such a loan. And, you can get one with a less-than-stellar FICO score.

Option 5 – Venture Development Organizations (VDOs) or Venture Capital

Consider a Venture Development Organization like Rev, which is based in Ithaca, New York. It has already financed a cannabis startup, so the hard part—getting them to agree to ever commit any capital—is already done.

Another such organization is the New Mexico Finance Authority.

In fact, there are a number of cannabis companies that have received venture funding. According to AG Funder News, in 2016, the ten-biggest cannabis tech-funding rounds netted over $57 million.

While any business is really only going to get venture capital funding if they are truly cutting edge (or paradigm-shifting), many cannabis businesses are cutting edge by definition. 

Any VCs who are interested in marijuana financing will have less of a problem putting down serious capital to support such endeavors. And without having to submit to FDIC regulations, they could be a viable option for cannabis industry innovators.

Novel farming systems in particular caught the attention of venture capitalists in 2016. But these days, innovative supply chain management might turn their heads even more.

Get Credit Line Hybrid Financing from Credit Suite

Get Credit Line Hybrid Financing from Credit Suite

Problems in Getting Funding For Cannabis Business

Your average business in the cannabis industry is going to have problems getting funding in ways that a company in the soft drink industry (for example) just plain will not. 

Cannabis Business Loan Credit SuiteDespite the growing popularity and legality of cannabis products in the states, the federal government still considers sale, purchase, or use of cannabis products to be illegal. It is a Schedule 1 drug according to the DEA. 

As a Schedule 1 drug, cannabis is lumped in with heroin. 

As a result, getting a loan can be difficult because federal banking laws consider banks offering cannabis business loans to be open to prosecution. It does not matter if cannabis is fully legal in the state where the loan originates from.

Banks are normally risk-averse anyway, even when there are circumstances allowing marijuana businesses to get a small business loan. Therefore, FDIC-insured banks will often deny all cannabis business loans.

It doesn’t help that cannabis businesses are classified under high-risk NAICS codes.

The Small Business Administration does not loan to direct cannabis businesses. But an indirect cannabis business (like an accounting firm serving the cannabis industry) might have better luck.

Even opening a business checking account is not easy. Most of the time, only local credit unions are willing to do it. Fewer than 40% percent of all dispensaries even have bank accounts. 

Given these limitations, it can be difficult for a cannabis industry business to truly achieve Fundability™. As a result, specialized lenders are often a cannabis entrepreneur’s best bet for small business funding.

Even with recent talk about fully nationwide legalization,a financial institution may still be skittish about offering a cannabis loan. It is, after all, still a new industry.

A cannabis business owner will need to be creative and think outside the box when it comes to seeking out company financing sources. 

Get Credit Line Hybrid Financing from Credit Suite

Get Credit Line Hybrid Financing from Credit Suite

Takeaways

Despite issues with getting lending, the cannabis industry is growing fast. Legalization efforts are continuing to spread across the country. 

But even if the FDIC doesn’t catch up any time soon, cannabis entrepreneurs can get funding through alternative lenders, angel and VC investing, crowdfunding, HELOCs, and business credit. Contact us today to explore your options.

About the author 

Janet Gershen-Siegel

Janet Gershen-Siegel is the Head Finance Writer and Content Manager at Credit Suite. She has been admitted to practice law for over 30 years, with a focus on litigation and product liability, and is a published author, with writing credits at Entrepreneur, FedSmith.com and BusinessingMag.com.

She has a BA in Philosophy from Boston University, a JD from the Delaware Law School of Widener University, and a MS in Interactive Media (Social Media) from Quinnipiac University.

She regularly writes for Credit Suite, which helps businesses improve Fundability™, build credit, and get approved for loans and credit lines.

Her specialties: business credit, business credit cards, business funding, crowdfunding, and law

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