Uses and Sourcing for Cannabis Equipment Financing
Detroit, MI
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January 10, 2023 05:08 PM Eastern Standard Time
Equipment is pricey, and few businesses have the capital available to purchase it without financing help. Despite being legal in 21 states, marijuana is still classified as a Schedule 1 controlled substance and remains illegal on the federal level. Because of this, most banks and credit card companies won't work with you in any capacity. This means obtaining a loan for your business through your bank won't be possible. But there are financing companies and alternative lenders that specialize in providing funding for the cannabis industry.
How to Obtain Cannabis Equipment Financing
It’s important to familiarize yourself with the process and the steps you’ll need to take to get financing.
1. Decide What You’ll Need
Inventory what you have on hand and what you still need. Do you need to upgrade your basic equipment or do you want high-tech devices to craft and cultivate new strains? Some of the most common things lenders extend the financing for include:
HVAC systems
Lamps
Security equipment
Fans
Thermometers
PH meters
Grow tents
Used equipment is a cheaper option, but some lenders are reluctant to finance used items.
2. Assess Your Collateral and Equity
Collateral isn’t a requirement for all lenders, but it helps increase your odds of getting approved for financing. Leverage your existing assets or equity as collateral if possible.
3. Check Your Credit
It’s possible to qualify for cannabis equipment financing without perfect credit, but you’ll want to ensure you’ve got a decent credit score to get the best possible rate. Ideally, your score should be in the good range of 670 to 739.
4. Write a Business Plan
Various options for writing business plans are available, but traditional is best when seeking funding. List competitors and analyze what differentiates you from the rest. Describe your marketing strategy and sales plan. Not only is a business plan helpful for investment opportunities, but it gives you the opportunity to carefully think things through and better prepare for issues that may arise.
5. Choose a Lender
Your situation will have a big impact on who you choose as a lender. People with a bad credit history (or those who are new to the industry) will have more difficulty accessing financing options. The best financial institutions to work with are those with a solid history of supporting marijuana-related businesses.
6. Gather Your Documents
The application process will vary depending on the lender, but you’ll want to gather all your
business-related financial documents and personal documents as well. You’ll need a list of
assets, financial statements, tax returns, bank statements, copies of your licenses, and business plans. Prepare to demonstrate your ability to repay the loan.
Choosing the Right Cannabis Equipment Loans for You
To successfully grow, process, and package cannabis products, there are essential pieces of
equipment required from the field to the dispensary. Here is a list of common products you may need for your business:
Scales and Balances
For quality control and product characterization, sampling requires precise weight
measurements. Samples must be weighed either in a tube or on a weighing dish to
determine their consistent sample size.
Lights
The type of light and its power consumption are among the most crucial factors to take into
account. Each technology has a unique set of benefits and drawbacks with regard to growing
cannabis when choosing the type of light to use. While some bulbs will produce the highest
yields (lumens per watt), they also generate a lot of heat, which can be problematic for many
growers — particularly those who reside in warm climates or can only grow cannabis in
constrained spaces.
Fans and Ventilation
Growing healthy and strong cannabis plants requires proper ventilation. A steady stream of
fresh air is essential. Without airflow systems, your grow room can quickly turn into a breeding
ground for pathogens and pests. Stale air stunts growth and weakens branches.
Grow Tents
If you’re just starting out, a grow tent is a practical way to grow cannabis indoors. Grow tents are made of sturdy metal poles with a covering that reflects light back to the plants while preventing it from escaping to other areas. There are ports for ducting, electrical cables and grow equipment in addition to zippers on it.
Trimming Tables
The actual plant trimming procedure must be carried out on a trimming table. To keep
everything organized, you’ll want to use a designated table space.
Advantages of Cannabis Equipment Financing
Cannabis equipment financing offers several key financial benefits for business owners,
including:
Improve cash flow: Although you may be able to purchase equipment without a loan, financing it frees up the cash for other expenses, opportunities or emergencies.
Protection from inflation: Your cannabis business can protect itself against inflation risks by using equipment financing. Your free cash is restricted if you put a sizable down payment on equipment or buy it outright.
Saving money: If business owners can’t qualify for financing, the next route they explore is typically leasing or renting equipment. Although it’s an option, it’s more expensive and you never actually own the equipment.
Considerations With Cannabis Equipment Loans
Before committing to a monthly payment for your equipment financing, you’ll want to carefully take some things into consideration, such as:
Interest rates: Because of the risk, cannabis equipment loans tend to have higher-interest rates than traditional business loans. Depending on the lender you choose, you may need to choose between fixed and variable interest rates. Each has its benefits, and you’ll want to explore the pros and cons of each with the lender.
Loan size and term: The loan size offered to a cannabis business will, like any other loan, be based on your capital requirements and credit risk profile, which will be determined by the submission of recent financial records (balance sheets, income statements and bank statements), your credit score and management personnel information. Remember to only borrow what you need because these loan terms are often shorter than traditional business loans.
Types of funding: When it comes to cannabis financing, there are actually several options, including accounts receivable funding and invoice factoring. Your specific role in the cannabis industry (distributor, manufacturer, cultivator or dispensary), your business model, the amount of equipment you need and your credit risk profile will all affect the type of funding that is best for your company.
Get the Funds You Need for Success in the Cannabis Industry
The cannabis industry is growing rapidly, and every year new states decriminalize and legalize the sale of cannabis for both medical and recreational uses. Although cannabis equipment financing isn’t readily available through every commercial bank or lender, there are lenders that work solely with cannabis business owners to help them succeed. With some preparation and research, it’s possible for you to quickly get the funding needed to purchase all the necessary equipment to keep your cannabis business growing.
This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.
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