Grow Money: How to Get A Loan for your Cannabis Business
Every startup can benefit from adequate funding in the beginning stages of business. If you’re opening a bakery for instance, you might seek out a business loan from a traditional bank or even a credit union.
However the ambiguous legal status of marijuana-related businesses makes banks shy away from investing in such ventures. However there are a few banks and credit unions that have begun providing merchant related services such as deposits, lines of credit, credit card processing and now even some loans.
Why Banks Don’t Want To Invest In Your Business
There are many reason that banks typically don’t provide loans to marijuana ventures specifically those directly involved with the plant or its derivatives but one of the biggest reasons has to do with the Federal Deposit Insurance Corporation (FDIC).
The rules of the FDIC clearly state that they will not insure a bank that takes on “existential” risks, which would include loans to companies in violation of federal law. Since Federal law impacts them at large, they simply won’t take the risk. Recently some banks are willing to invest in marijuana-related businesses that avoid the legal risk of actually “touching” the plant such as those that sell indoor growing equipment.
Banks themselves would rather avoid criminal liability for aiding and abetting activities still considered felonies under federal law. By accepting deposits from a marijuana business they can be viewed as money laundering, even though this has mostly not been enforced. It should be noted that The Department of Justice tolerates marijuana businesses in states where it’s legal, but that is subject to change with the political climate unless the government legalizes marijuana at the federal level.
Private Equity Steps In
Private investors are now stepping in and backing marijuana businesses in the relative absence of bank loans. Some private equity opportunities include venture capital and private equity funds, angel investors (wealthy individuals, generally), marijuana business consulting firms that manage private funds, and private providers of high-interest loans.
They do however often require a few specifics if you want your marijuana business to be considered for a loan:
- Be incorporated
- Have a business banking account (in the business name)
- Be a marijuana dispensary or grow operation that has been in business for at least six months
- Have monthly gross sales of at least $10,000
- Have a credit score of at least 500
So in a nutshell you have to have the basics of an operational business to be considered. No one is making securing financing for a marijuana business easy, but the rewards are potentially huge in this rapidly growing market if you can figure out the best way to support your initial growth.