As a cannabis business owner, you may have used a loan to launch your business. But now that your business is growing, you might consider the ways that dispensary loans can help you expand your operations.

Historically, it’s been difficult to find financing for cannabis businesses. But today, business owners have more options for obtaining the funding they need to take their business to the next level. If you’re looking to scale your business, here’s what you need to know about dispensary loans.

How Do Dispensary Loans Work?

Even though the cannabis industry is gaining greater acceptance, it’s still hard for cannabis entrepreneurs to secure business financing through conventional lenders, such as banks. 

You can still obtain various forms of dispensary loans through specialty lenders. These loans offer flexibility, allowing cannabis businesses options such as:

• Equipment financing
• Commercial real estate loan
• New marketing methods or tools
• Bridge loan
• Inventory financing
• Daily business operations

Dispensary loans are typically term loans. Once you’re approved, you’ll receive your loan as a lump-sum payment. You’ll then be expected to repay the loan (plus any interest accrued) according to the terms set in your loan agreement. 

Depending on your agreement, you may be able to repay the loan early, which will save you money on interest payments, though some lenders may have prepayment penalties if you don’t stick to the predetermined term.

The Process of Getting a Cannabis Business Loan

The exact process of securing a cannabis business loan depends on the lender, but most business lenders have the same general requirements. Here’s what you might expect when pursuing a business loan for your dispensary.

Application Process

Start by going through a lender’s application process. Most lenders will review your basic business information, such as your:

• Business plan
• Business credit history
• Recent financial statements

Some lenders may also consider your personal credit score as well, though this will be less likely for established cannabis business owners.

But remember, not all cannabis lenders are the same. Before you pursue a loan, take time to research lenders. Compare the rates, terms and loan amounts of three different cannabis lenders to ensure you’re getting the best possible small business loan.

It also helps to update your business plan before seeking a lender. After all, your business plan will include vital information about your business, including your recent financial performance. 

Your business plan will, therefore, include recent financial data and a funding request. This makes it easier for lenders to review your application and gain a better understanding of your business.

Loan Amount

At some point in the application process, you’ll have to specify your loan amount. How much do you need to grow your cannabis business? You’ll need to determine this value before you submit an application. You might even include your funding request in your updated business plan.

Some lenders even specify your max loan amount, though this can vary based on the past performance of your business, your business credit history and your exact needs. Keep in mind that the terms and conditions of your cannabis loan can vary depending on the size of the loan.

This is where it pays to have a well-written business plan. A business plan will help you stay focused on your strategic goals and demonstrate your unique value proposition in the eyes of cannabis lenders. 

You may stand a better chance of securing better loans if you can showcase what makes your business successful — and unique.

Use of Loan Funds

Cannabis lenders will often base their financing decisions on how you intend to allocate your loan funds. And some dispensary loans are even specific to your exact business needs. 

For instance, some funding options are designed to purchase additional inventory or supplies. Others are designed to be used as equipment loans, which might help you purchase additional point-of-sale (POS) equipment for your dispensary, for example.

Otherwise, you can use your cannabis loan for any business-related expense at your dispensary, though lenders will still ask for an explanation of your funding goals when processing your application. 

Loan Terms

Loan terms are perhaps the most important thing to pay attention to when searching for a financing solution. Pay close attention to terms and conditions, such as:

• The amount of your loan
• The loan term (length of your loan)
• The interest rate of the loan
• Any additional fees (origination fee or administrative fees)

Some lenders also attach additional clauses and provisions. For example, some lenders attach prepayment penalties, which means that you won’t be able to pay your loan off before your term expires unless you’re willing to pay the penalty.

This is why it’s so important to compare lenders before you commit to a cannabis loan. Rates and terms vary by lender. You may find a better loan option (perhaps with lower interest rates or no additional fees) at one lender versus another. Try to compare the rates and terms of at least three lenders before making a commitment. 

How Dispensary Loans Benefit Cannabis Businesses

Remember, you can’t obtain funding for your cannabis business from just anywhere. Because cannabis is legal only on a state-by-state basis, major banks are unwilling to extend business financing options to cannabis entrepreneurs. 

The same applies to the U.S. Small Business Administration, which has long been the gold standard of loans for small businesses across the country.

But that’s partly what makes dispensary loans so valuable. These specialty loan programs provide much-needed funding for cannabis startups as well as established businesses seeking to expand their operations.

A cannabis loan can help your business grow by helping you:

• Purchase new or additional inventory
• Adopt a new marketing technique
• Tap into a new customer base with new products
• Upgrade your equipment
• Remodel your current retail space
• Invest in new commercial real estate
• Create office space for you and your staff

The U.S. Securities and Exchange Commission reports that the cannabis industry is expected to reach $31.1 billion by 2024. Dispensary loans can provide the working capital needed to tap into this expanding market as well as stay ahead of the growing competition.

Tap into a Growing Industry and Funding Opportunity

It’s no secret that marijuana businesses are gaining acceptance, even if only in one state at a time. But for established cannabis business owners, that’s good news. A rising tide really does lift all boats, and as legalization marches forward, dispensaries can see an influx in business.

Dispensary loans empower you to take advantage of these trends by reaching a broader customer base or expanding your product offerings. While traditional lenders are still saying “no” to cannabis-based businesses, other lenders are coming through with options for dispensaries and other cannabis business owners.

Frequently Asked Questions

Q: Can you get personal loans to start a dispensary?

A: In many cases, lenders won’t issue personal loans for business purposes. And because you’re securing a personal loan through a traditional lender, you might expect to see your application rejected if you’re seeking financing for a cannabis business.

Q: Who qualifies for dispensary loans?

A: Just about any cannabis business owner can qualify for cannabis business loans, though every lender will establish its own requirements. The best loan rates, terms and amounts will go to business owners with strong business credit and who can demonstrate strong financial performance.

Q: What are dispensary loans used for?

A: Some dispensary loans are specifically designed to cover the cost of inventory, equipment or real estate. Other loan programs are more flexible and can be used to fund a range of expenses in the expansion of a cannabis business.