What is Marijuana Equipment Financing?

marijuana equipment financing

As your business grows, so do your needs. Most business owners can turn to a bank or traditional lender to fund the purchase of new equipment. But cannabis business owners face unique challenges. But you can still tap into marijuana equipment financing through a dedicated cannabis lender and use the funds to fuel your expanding business.

Here’s what you can expect from these loan programs, including their numerous benefits and how they can help you cultivate a more successful business.

How Does Marijuana Equipment Financing Work?

A business equipment loan is a specialized form of financing that allows you to fund the purchase or lease of business equipment. These loan options are common for business startups, but any business can use an equipment loan to purchase or upgrade their equipment to fuel their business growth.

Common applications for an equipment loan include:

  • Point of sale (POS) equipment
  • Cultivation equipment
  • Extraction equipment
  • Kitchen and storage equipment
  • Computers and office equipment
  • HVAC and facility equipment
  • Commercial vehicles
  • Office furniture
  • Software programs and upgrades

Equipment loans should also be large enough to cover the installation and maintenance of this equipment, so plan ahead before you apply. And for larger equipment, request an estimate of installation costs to help you plan your loan amount.

These business loans typically come in a lump-sum payment. Business owners repay the loan according to a predetermined payment schedule, which includes interest owed. Lenders may ask you to specify how you intend to use the loan. But once the funds are approved, you can generally use them for any business-related equipment lease or purchase.

Challenges Faced in Financing Marijuana Equipment

The cultivation, sale and possession of cannabis remains illegal at the federal level, with marijuana legalization proceeding on a state-by-state basis. As a result, most banks and traditional lenders aren’t willing to approve a business loan for cannabis business owners.

Cannabis companies must look elsewhere to obtain funding — whether for equipment, commercial real estate or working capital loans. But with the right lender, you can tap into the funding you need to purchase, lease or upgrade your business equipment. 

This challenge comes with an unexpected advantage: a dedicated marijuana lender will have insider knowledge of this challenging industry. By pursuing marijuana equipment financing through a dedicated cannabis lender, you’ll gain access to both the funds and the expertise you need to fuel your business growth.

Benefits of Marijuana Equipment Financing

The advantages of cannabis equipment financing include:

  • Easy access to necessary equipment for marijuana businesses: An equipment loan will be easier to qualify for than a larger loan, giving you quick access to the funds you need to purchase or upgrade your equipment.
  • Flexibility in terms and repayment options: Cannabis lenders provide flexible loan terms and interest rates so you can tailor your loan repayments according to your monthly budget.
  • Potential tax advantages and incentives: For most equipment loans, you can deduct interest paid from your annual business income taxes.
  • Varied applications: You can use cannabis equipment financing loans for multiple applications, ranging from cultivation and storage of products to point of sale (POS) devices and back-office equipment. Most equipment loans will also cover the cost of installation.
  • Straightforward loan terms and fees: Cannabis business lenders offer straightforward loan terms and fees. This gives business owners a clear picture of how their loans will work in relation to their broader business finances.

Technically, cannabis equipment loans can overlap with other financing options. Working capital loans, for example, might cover at least some of your day-to-day business equipment. But an equipment loan will be ideal for growing businesses that need to purchase, lease or upgrade their equipment to meet increasing demands and outperform competitors.

How to Qualify for Marijuana Equipment Financing

To obtain marijuana equipment financing, you’ll first need to find a dedicated cannabis lender. Remember: Most banks and small-business lenders don’t work with cannabis companies. Once you find a cannabis lender, you’ll go through the application process. The exact details of the process differ by lender, but you can generally expect to provide the following:

  • A completed loan application
  • A business plan
  • Financial records (balance sheet, profit-and-loss statement, etc.)
  • Documentation of cannabis licensing and business permits

Your lender will review your application and business finances — including your business credit score. Your financial stability will determine your eligibility for equipment finance options, with favorable rates and terms going to businesses with a strong track record and healthy credit score.

Key Considerations When Choosing Marijuana Equipment Financing Options

Before you commit to a cannabis lender, you’ll need to consider factors such as:

  • Your financing needs: Start by determining the exact costs of the equipment you intend to purchase, along with any installation requirements. This will ensure that you obtain the funds you need.
  • Other types of loans: Equipment loans are not your only option. You might consider dispensary or working capital loans, which can also provide financing for certain types of equipment. The final decision may depend on the amount of funding you need and the terms set by cannabis lenders.
  • Interest rates: Cannabis lenders use varied interest rates. Because your interest payments can have a profound impact on the total cost of your loan, it’s important to compare at least three lenders before committing to equipment financing.
  • Repayment terms: The lifespan of your loan will determine the size of your monthly payments. Make sure to select a lender that offers a reasonable repayment term so your payments fit comfortably into your monthly business budget.
  • Fees and penalties: Lenders can attach additional fees and conditions that add to the cost of your loan. Pay attention to things like repayment penalties, which will prevent you from paying off the loan before the loan term is complete.

Cannabis lending options are limited. But by comparing the loan terms and interest rates of three lenders, you can have greater confidence that you’re getting the best deal for your business.

Keep Your Business Growing

The cannabis industry is growing. As more states legalize recreational marijuana, existing cannabis businesses can expect to see a higher sales volume. They can also plan to see more competition. Marijuana equipment financing can address both of these needs. 

When you work with the right lender, your business can adapt to a changing marketplace. Your new equipment can introduce you to new product lines and help you implement a new marketing plan or run your business more efficiently. If you’re looking for a basic way to expand your cannabis business, apply for a cannabis business loan today.

Frequently Asked Questions

Q: How hard is it to get a loan for equipment?

Most traditional lending institutions don’t work with cannabis companies. For that reason, cannabis business owners may face challenges in securing equipment financing. But if you partner with a dedicated cannabis lender, an equipment loan will usually be easier to qualify for than a real estate loan or other loan type.

Q: What is a good rate for an equipment loan?

Equipment loan interest rates vary widely by lender and by your loan agreement — including your loan amount. The exact interest rate can range from 7% to 20%, so an interest rate in the single digits would be ideal for a cannabis business. Remember to compare lenders to find the best possible deal.

Q: What is the average term of an equipment loan?

Equipment loan terms vary by lender and loan amount. A good target would be 12 to 18 months because it would help keep your monthly payments to a minimum while also preventing you from taking on long-term debt.

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