Advantages of Business Equipment Financing for Cannabis Companies

Access to working capital and cash flow are two vitally important aspects of any cannabis company. As a business owner, you naturally want to minimize your outgoing expenses and manage your cash flow. This can be difficult, especially when it comes to large equipment purchases. Business equipment financing is a great way to get the equipment you need without blowing a hole in your budget. Keep reading to find out how this process works. 

What is Business Equipment Financing?

Equipment finance options are a loan that companies take out to purchase pieces of equipment that are vital to business operations. These arrangements are similar to a small business loan, the business agrees to make payments on a set schedule until the loan is paid off. A cannabis based business for example, could buy an upgraded irrigation system to improve their crop yield or a new extraction system to make more edibles.

The lender makes money by charging interest on the loan, which is typically secured by placing a lien against the equipment being financed. In exchange for the financing, the business acquires equipment that can be used to increase profit. However, the process of obtaining financing for business equipment can be especially challenging for cannabis companies. This is because cannabis is still classified as a Schedule I controlled substance by the Drug Enforcement Administration (DEA). 

This classification, combined with anti-money laundering laws, has made many traditional banks hesitant to do business with cannabis-related businesses. Fortunately, cannabis businesses have some alternative options, including private lenders and online crowdfunding networks that can provide this vital capital. New Equipment acquisitions and the ability to leverage existing equipment is critical to both growth and efficiency gains and CBR provides financing programs that have some of the most competitive terms in the market. 

How Does an Equipment Financing Loan Work?

Equipment finance is something that should be carefully considered. Although it’s a great way to manage cash flow because it keeps you from using a large chunk of capital all at once, regular debt service is still going to eat into your business’s revenue. That’s why a solid plan is important. Examples of what should be in your purchase plan include:

1. Shop around for your product. It’s important to get the best deal possible.
2. Get an all-in quote, including installation, delivery and any additional software or hardware required to operate the equipment.
3. Figure out how much you will need to borrow.
4. Gather the documents you will likely need for loan approval such as a business license, profit-and-loss sheets and tax filings.
5. Search for lenders.
6. Review the loan terms offered by any lenders who approve your loan application.
7. Make arrangements for loan payments such as an ACH transfer or auto-billing to your company’s operating account.
8. Sign the loan documents and complete the transaction.

5 Advantages of a Business Equipment Loan

Equipment financing offers numerous advantages to any business, especially ones that manufacture, market or sell cannabis products. Some of the advantages offered in business financing arrangements include:

Cash-Flow Management

Running any kind of business is expensive, which underscores the importance of managing its cash flow. By financing business equipment like HVAC systems or grow lights, cannabis companies can avoid using large chunks of its capital on a single purchase but still get the benefit from the product. This allows the company to invest that capital in other areas of need for the business, such as advertising or expansion.

Ownership

With equipment finance, the business can take ownership of the equipment necessary to its operations. The financing arrangement also allows the business to own this equipment at a fixed cost. Equipment rental arrangements, on the other hand, are temporary, which means the equipment must be returned or re-leased when the contract ends.

Establishing Relationships with Lenders

Cannabis businesses invariably encounter situations where they need to borrow money. Things like hiring new employees, advertising or acquiring a new building to house operations can be difficult if not impossible for a business that can’t secure financing. By successfully applying for and paying back an equipment loan, businesses are able to establish relationships with lenders. These relationships could make obtaining financing in the future much easier. Canna Business Resources provides bespoke financing capabilities to acquire equipment, or financing equipment that has already been purchased, to provide operators equity.

Saving Money

In many cases, the monthly payments on equipment financing are more business friendly than the terms offered on equipment rental. 

Growing Revenue

When a piece of equipment is critical to a business’s operations, acquiring that equipment allows the business to grow its revenue. For example, buying equipment that allows a business to double or triple its product output should mean the business can double or triple its profits 

4 Considerations with Business Equipment Financing

Although equipment financing for cannabis based businesses has a number of potential benefits, several other considerations must be taken into account. Examples of those considerations include:

Loan Terms

Things like down payments, interest rates and payment schedules should be thoroughly discussed by the braintrust for the business. Once the loan documents are signed, the business will have limited ability to alter them. Accordingly, the business’s leadership needs to be 100% sure they understand the terms of the financing and that they can abide by them for the life of the loan. 

Benefits of the Equipment

The question of how much money the business can make off the equipment being financed is essential. An equipment finance loan can only be justified if the equipment will allow the business to increase productivity at a rate that exceeds the cost of buying and financing the equipment.

Your Company’s Credit Score

Businesses have credit scores just like private citizens. Needless to say, the higher the business’s credit rating is, the more favorable the loan terms will be. If the business has a poor history of making on-time payments to creditors or vendors, securing the loan on terms friendly to the business may be difficult.

Storing or Securing the Equipment

Does the business have ample space to house and secure the equipment? Will security around the facility or the facility itself need to be upgraded to accommodate it? How much will those upgrades cost?

Is Business Equipment Financing Right for Your Cannabis Business?

Equipment like HVAC,  lights, extraction, or irrigation systems is critical to the success of many cannabis based businesses. Financing these purchases gives the business the best of both worlds. They can benefit from the profits generated by the equipment right away, but spread the cost of paying for it over an extended period of time. With that said, it’s not a decision to be taken lightly. 

Business owners must carefully consider both the benefits and potential risks that go with financing equipment and equipment financing options. Working with the right equipment finance companies will allow a cannabis based business to flourish and expand its customer base while also maintaining vital capital that can be invested in other areas.

Frequently Asked Questions