How to Qualify for a Hemp Business Loan: Tips and Requirements

hemp business loans

The good news is that your hemp-based business is taking off — so much so that you’re ready to expand. The bad news is that you can’t find hemp business loans from banks and traditional lenders. Don’t panic. You can still qualify for a small-business loan through a cannabis lender.

Eligibility requirements vary by lender, but there are still some ways you can improve your chances of qualifying for a cannabis loan and securing favorable rates and terms. Here are some tips for qualifying for a hemp business loan.

The Use of a Hemp Business Loan Can Enhance Business Growth and Expansion

By some estimates, the cannabis industry is expected to surpass $154 billion by 2027. If you’re a cannabis business owner, you can benefit from this upward trend. 

On the other hand, the growing acceptance of cannabis businesses means that you may face increasing competition. Hemp business loans can provide the financial resources you’ll need to thrive.

For instance, a cannabis business loan can provide the funding you’ll need to:

  • Purchase additional real estate
  • Remodel existing real estate
  • Invest in new inventory
  • Purchase new equipment
  • Hire additional staff
  • Invest in a new marketing campaign

Additionally, some businesses might consider a working capital loan, which can provide an influx of cash to cover your day-to-day operations. The great thing about hemp business loans is they’re not all alike, giving cannabis entrepreneurs maximum flexibility in how they allocate resources and invest in their businesses.

How to Successfully Obtain a Hemp Business Loan

Because cannabis is legal only on a state-by-state basis, banks and traditional lenders don’t offer financing for cannabis business owners. But that’s OK because you can still secure a cannabis business loan from a designated lender who knows the market as well as you do. 

Here are some tips for securing the best loan for your business.

Solidify a Cannabis Business Model

Lenders take on a certain degree of risk when extending any type of business financing. If your business seems too risky, you could be rejected by your lender or saddled with high-interest rates. Instead, solidify your business model to demonstrate that your cannabis business has a secure foundation and trajectory for the future.

If you haven’t done so already, put together a business plan or modify the plan you created when you first started. Make sure to include past financial data, future revenue projections and market analysis to show how you have historically performed and intend to keep growing.

Detail Who Your Target Market Is

Lenders will want to know how you plan on gaining traction in the cannabis market. You can provide this information by explaining more about your target market. Who is your average consumer? Who do you plan to bring into your business? What are some industry trends that provide insight into the spending habits of your target market?

Keep in mind that there may be more than one answer to these questions. For instance, some products or services might appeal to one demographic, while other products may reach a different customer segment altogether. And that’s a good thing. 

Showing knowledge of your customer segments demonstrates a clear business strategy, which can go a long way when securing hemp business loans.

Layout Your Existing Capital Streams

Your business loan application should list all of your capital streams financing your operations. This can include any prior small business loans you may have used to get your business off the ground, such as equipment financing

If you have additional revenue streams — like if you’re a cultivator who also operates a retail store — include each one.

Be prepared to elaborate on each source of financing. Explain how you intend to pay off previous loans, as well as how your financial projections will allow you to pay off any additional hemp business loans you use to fund future expansion projects. 

Clean Up Your Credit Report

Cannabis lenders typically expect to see your credit report before approving you for financing. Depending on how long your cannabis business has been in operation, lenders will focus primarily on your business credit report, though don’t be surprised if lenders also ask to check your personal credit as well.

Before you apply for hemp business loans, check your credit report for any mistakes or inaccuracies that could artificially lower your score. Each of the major business credit bureaus (Experian, Equifax and Dun & Bradstreet) allows you to check your score once each year for free. 

Report errors immediately, as it can take time to remove mistakes from your record.

Gain Insight Into Your Cash Flow

Some small-business owners make the mistake of focusing on revenue and neglecting their cash flow. While revenue shows how much money is coming in, your cash flow reflects the amount of money flowing in and out of your company. 

Your cash flow tells you something about your working capital and your ability to meet your financial obligations.

When you apply for a loan, make sure your business has consistently positive cash flow, which demonstrates your ability to repay the loan. Similarly, your debt ratio will show lenders how much debt you have, which also reveals how much more you can reasonably take on.

Have a Plan to Repay the Loan

Most importantly, you’ll need a solid plan to repay the loan. Showing lenders your revenue projections can prove you have the financial stability to repay the loan as well as any interest.

Having a plan will likely influence your loan term. If you’re able to pay off your loan quickly, you may opt for a shorter loan term, which translates into lower interest over the life of the loan.

Working With a Direct Cannabis Lender for Fast Approval

Even though banks and traditional lenders don’t typically offer loan programs for cannabis businesses, that can be to your benefit. That’s because direct cannabis lenders understand the needs of the industry. 

Not only does this improve your chances of receiving fast approval, but your lender may be able to steer you toward loan programs that align with your business goals.

Keep in mind that not all lenders are the same. Make sure to compare rates and terms from three lenders to determine whether you’re getting the best deal. And never forget to investigate lenders to identify what loan programs are available and what options fit your business.

Hemp Business Loans Made Easy

Now that the cannabis industry is growing, it’s more important than ever to secure hemp business loans. With the right lender, you can tap into the financing you need to expand your retail space, purchase new supplies, inventory or equipment or secure working capital loans to regulate your day-to-day cash flow. 

Frequently Asked Questions

Q: Will banks loan to hemp business?

Banks and traditional lenders don’t lend to cannabis businesses because marijuana is only legal on a state-by-state level. Hemp business loans must be obtained through a dedicated cannabis lender.

Q: Does a business loan affect personal credit?

Your personal credit can be shielded from your business finances, but there are times when your personal credit can be impacted by a business loan. If your lender requires a personal guarantee (meaning you’re responsible for at least a portion of the loan), your credit will be impacted. 

Q: Can you get a business loan for a dispensary?

You can use a business loan for a dispensary, but remember that dispensary loans are generally available only through dedicated cannabis lenders. Banks and traditional lending institutions don’t offer loans for cannabis businesses.

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