Starting a business was a supreme accomplishment. Now, it’s time for the next step. Growing your business can secure additional revenue and provide resilience for your company as a whole. But to grow your cannabis business, you’ll need the right financing.
“What are some ways to grow my business with loans?” you ask. Before answering that question, it may help to brush up on the basics of business financing.
What Is the Purpose of a Business Loan?
You can use a business loan to cover the costs of launching, maintaining or growing a business. For existing business owners, business financing can provide the capital needed to expand operations. Loans can be used to cover the cost of things such as:
- Supplies and equipment
- Commercial real estate
- Remodeling
- Research and development
A business loan can be a valuable investment for cannabis entrepreneurs. In 2019, cannabis businesses earned over $12 billion in revenue, a number that’s expected to increase to $31.1 billion by 2024. Investing in your business today could very well pay off tomorrow.
Types of Loans: Exploring the Different Options Available
Here we'll take a look at the different loan options available for businesses.
Short-Term Loans
Common types of short-term loans include term loans (which can be adjusted to as little as a year), working capital loans or business lines of credit. These types of loans can come with higher interest rates but can be easier to get and give you the cash flow you need to make immediate improvements to your business.
Long-Term Loans
Long-term loans can include installment loans and certain types of equipment financing. The goal is to provide business owners with a large, lump-sum payment that can be used to make substantial improvements to their businesses.
Just be aware that eligibility requirements can be steep, and some lenders may require a personal guarantee, which means your personal assets will be on the hook if you default on the loan.
Alternative Financing
Cannabis business owners might also consider alternative financing. For example, accounts receivable (A/R) and reverse A/R financing can allow companies to receive early payments for their invoices.
Like a short-term loan, this type of financing can provide a boost in your immediate cash flow, which can cover operating expenses or short-term improvements to your business.
7 Ways a Cannabusiness Loan Helps You Take Your Operations to the Next Level
Finding ways to grow your business with loan options can provide many benefits for your company. Here’s how a fresh inflow of cash can revolutionize the way you do business.
1. Increased Cash Flow
The most immediate benefit of cannabis financing is that you’ll receive increased cash flow. But since traditional banks don’t offer cannabis loan options, you’ll have to seek alternative financing.
A/R and reverse A/R invoice financing can help, providing a reliable stream of income to your business. You can use this boost in cash flow to purchase new supplies or invest in new equipment to grow your brand.
2. Access to Resources
What resources do you need to grow your business? The list might include new equipment, inventory or the capacity to hire additional staff. Cannabis loans provide the capital you need to tap into these resources, making it easier to scale your business.
3. Expansion Opportunities
Cannabis business owners can scale their businesses by expanding their physical space or purchasing additional real estate. For growers and producers, this can include extra horticultural space, warehousing or transportation. Retailers can use these funds to expand their retail space or open additional locations to expand their reach.
4. Inventory Purchasing
Increased business volume will create additional demand for your existing inventory. A cannabis business loan will provide the funding you need to replenish your inventory or purchase new products to satisfy demand and stay ahead of your competition.
5. Equipment Purchasing
Recreational and medical marijuana businesses may require additional equipment to expand their operations. New equipment can satisfy changing patient and consumer needs, allowing you to offer products or services that customers can only find in your store.
6. Managing Day-to-Day Expenses
As the name suggests, working capital loans provide an influx of cash that can be used to manage your regular operating costs. These expenses include things like utilities, certain types of accounts receivables and payroll.
7. Marketing
Expanding your existing cannabis business will require you to get the word out. An expansion will typically require market research as well as the cost of designing and implementing a marketing campaign.
Working capital loans can provide the cash needed to achieve these goals, and larger loans can be used to create long-term marketing plans or pay third-party providers.
The Freedom to Innovate
“What are some proven ways to grow my business with loan options?” Cannabis business owners commonly ask this question, and the truth is that the sky’s the limit when it comes to business expansion.
Cannabis financing allows you to innovate, letting you devise creative solutions that can take your business to the next level.
Frequently Asked Questions
Is it a good idea to take out a business loan?
Yes! You can use a business loan to cover your day-to-day costs, as well as purchase the supplies, equipment or real estate you need to grow and expand.
How much should you borrow for a business loan?
Typically, lenders won’t let you borrow more than 10% to 30% of your business’s annual revenue. This amount can be a useful starting point, though you should adapt your financing needs to your business goals.
Can a cannabis business get a credit card?
Since the state regulates cannabis, cannabis business owners cannot apply for a credit card from traditional credit card companies. Some non-traditional lenders may offer business lines of credit, which can provide a flexible financing solution for cannabis business owners.
About Sarah Edwards
Sarah Edwards is a CBD and cannabis writer passionate about empowering people with accurate, engaging and accessible content about both industries. She has nearly a decade of writing experience focused on cannabis and CBD culture, science and business. Her work has been published on Cannanine and The Hemp Haus.