Starting a dispensary is going to take serious financial resources. Getting started can be costly in a variety of ways, from inventory to real estate and beyond. You likely have heard by now that our industry struggles with obtaining traditional bank loans.
Banks that make loans to cannabis entrepreneurs are taking risks the FDIC won't accept, and they
would lose coverage on all their other accounts. For now, this situation forces anyone needing money to open a cannabis dispensary to look somewhere besides a traditional bank. But where? The good news is there are types of funding available to those looking to open a dispensary. Let's take a look at some examples.
There are three kinds of funding that are relatively easy for cannabis dispensaries to tap into. They are working capital lines of credit, term loans, and merchant cash advances.
Working capital lines of credit are not really loans. They are a way to get a cash advance on either your daily debit and credit card sales, or on your documented monthly revenue. They are a great way to get cash quickly—sometimes as soon as the same day you apply—even if you don’t have great credit.
Many borrowers describe working capital lines of credit as the Swiss Army knife of cannabis dispensary financing. You can use your working capital line of credit to meet unexpected expenses. Or you can use your working capital line of credit to purchase inventory, finance a project, or make sure you get paychecks and tax payments out on time.
With a working capital line of credit, you get a lump sum of cash that you pay back at a fixed rate of interest, called your factor rate. Most working lines of credit allow you to borrow more money once you have paid down your line of credit by 50 percent.
Working capital lines of credit are there when you need them. You don’t have to borrow the full amount right away, and you don’t have to pay interest on money you don’t borrow. When you pay off your working capital line of credit, you can borrow it again.
Term LoansA term loan is a loan for a fixed period for a specific purpose. Paying off your loan, of course, makes you more creditworthy for future loans, but term loans don’t automatically create new credit for you as you pay them down.
It is a little harder to get a term loan than a working capital loan. You may have to put up collateral to get a term loan unless you have good or excellent credit.
A merchant cash advance is funding that you repay with a fixed percentage of your daily or weekly credit card and debit card sales. You get cash upfront, and your lender gets paid when you get paid for your products with credit or debit cards.
There are a number of advantages to merchant cash advances. You get cash fast. You can use the advance however you like. Merchant cash advances do not affect your credit rating, and they are available when your credit score prevents you from getting other kinds of financing. You don’t need to put up collateral.
Having good credit is important for loan qualification. Before you get started, if you don't already have good credit, focus on improving your score. If you're not sure where to begin, many things could be impacting your credit such as late or missed payments, credit usage, length of credit history, and more.
No matter what kind of funding you are seeking for your cannabis dispensary, you need to have a very clear plan
for what you plan to do with the cash.
Lenders want to make sure that you have the supply, the customers, and the location to make a go of your business. They expect you to have formed an LLC or a corporation to separate their assets from your personal assets. They prefer to see a track record of sales. Think in terms of getting that first $10,000 a month.
And when lenders look at your credit, they are looking for one thing more than anything else, they want to make sure that you pay your bills.
But what if you need financing to get the doors open? What if you still need to lease or buy your store location, you need to buy equipment, and you need to stock your inventory?
Related Blog: How To Write a Dispensary Business Plan
Canna Business Financing specializes in securing funding for all kinds of cannabis business owners in ways that are fully compliant with state and federal laws. We can help you find the financing you need at every stage of your business.
In addition to working capital loans, term loan, and merchant card advances, we can help you get a loan for your brick and mortar dispensary location, buy your equipment, and acquire your inventory. We can enable you to accept debit and credit cards. We offer term loans that provide you with working capital. Get pre-approved in just 48 hours and get started today.
