As you prepare to open your cannabis business, it’s important to optimize your chances of getting the funding you need by making sure your personal financial situation is in good shape and looks solid to lenders. The first step is to understand your situation—get to know the financing options that exist and which ones you are eligible for. It's important to note that there are several types of funding available for startups, such as:
Loan qualification for any of the options outside of friends and family, or equity deals, is based on your credit score and your debt-to-income ratio (Your total monthly expenses, such as mortgage or rent/auto payments/min credit card payments vs. your total monthly gross income.)
When it comes to credit for the cannabis industry, understanding these numbers is key to sourcing and qualifying for the correct financing product, as this is the number lenders use to measure your ability to manage the monthly payments to repay the money you plan to borrow.
Focus on strengthening and maximizing your credit score with all three bureaus (Experian, Transunion, and Equifax). The higher the score, the more available financing options and for lower costs.
Almost all lending instruments for early life cycle/growth businesses will require a personal guarantee from the principal owners (anyone holding 20% or greater).
You can request and check your credit report. This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
Credit Karma is a good resource for this as you can see your scores on the major bureaus but it is a soft pull, so won’t show as an inquiry, which can knock your score down a few points.
You can also do that for free once a year through the official AnnualCreditReport.com website. Then review each report to see what’s helping or hurting your score.
Factors that contribute to a higher credit score, and are major credit score detractors include:
In order to build your credit score, it's important to pay your bills on time! No strategies to maximize your credit score will be effective if you pay your bills late. If you have missed a payment by 30 days or more, a creditor will then report that data to the credit bureaus. In the event this occurs, you can contact the creditor immediately and ask for a courtesy removal.
In order to avoid this occurrence, strategically pay off existing debt and keep the balances low on credit cards or other forms of revolving credit. If you can make periodic payments throughout the month it will help keep your credit card balances lower, and by extension, the overall utilization of your credit file.
Your credit utilization, or the balance of your debt to available credit, contributes 30% to a FICO Score's calculation. It can be easier to clean up than payment history, but it requires financial discipline as well as an understanding of the tips below:
If you only have either credit cards or loans, consider getting the type of credit that you don’t have to improve your credit mix. Having both installment accounts and revolving credit, such as loans and credit cards, can boost your perceived credit-worthiness.
Dispute inaccuracies on your credit reports or consult a professional credit enhancement provider. A single mistake on your credit report can heavily impact your FICO score. If you identify negatives, you legally have the right to contest them with the three credit bureaus directly online or over the phone.
Be sure to focus on financials. Have your personal budget in order / ensure you have enough cash flow to support your personal & businesses expenses until your business is generating positive cash flow.
At CannaBusiness Financing, funding options are tailored to each situation. Companies with no business history can qualify for $200,000 plus per applicant and operating entities based on performance and profitability have many additional options.
Contact us today for more information and to see what you can qualify for!
You May Also Like: APR vs. Interest Rate
Posted by Scott Griffiths
Co-founder, CannaBusiness FinancingFacebook
In an industry that is constantly evolving, Canna Business Financing provides business owners with a reliable source to gather the most up-to-date information. From resources to fund the growth of your business to insights on best practices to scale, look no further!