Even if you have a large family property where you can plant hemp or cannabis, there is still a good chance you’ll need some initial investment to get things off the ground. This is why CBD business loans have become a crucial part of the cannabis industry.
Given that the demand for CBD items has increased exponentially in the last several years, it makes sense that you would be interested in this business.
Unfortunately, you might encounter certain barriers along the way.
Why it might be hard to get approved
Until recently, CBD products were illegal in most of the US. Bank and other financial institutions are still learning about the industry and potential risks.
Unlike some traditional products and services, it is really hard to get a loan for CBD. Things get even harder when you consider that most applicants are startups.
But that doesn’t mean that it’s impossible.
Whether you’re a hemp farmer who wants to get his business off the ground, you have a manufacturing plant that needs to improve its processes, or a company that wishes to improve its distribution network; there is a good solution for you.
Here are four of the most common CBD business loans that your company can get.
Main CBD business loan types
All loans can be placed in 4 main categories: CBD business loans for equipment, working capital, real estate, and for large projects.
Given that you need a proper soil to grow cannabis and hemp, it makes sense that real estate loans will be the first entry on our list. In the end, you can’t even start the business if you’re unable to grow the plant. However, real estate loans can also be used for other purposes. For example, you can use the property to build a dispensary, an office, or a warehouse. With these loans, you will be able to buy or refinance a good property for your CBD project.
Of course, you will also need money for all the CBD equipment. If you’re growing cannabis indoors, or in special conditions, these costs can go all the way up. Not to mention hydroponic systems and growing marijuana is cargo crates. Equipment financing should be at the top of your priority list. Although you can cut costs on certain tools, it is much better to invest a bit more money in order to produce better results. This is especially true for micro-companies that want to take their business to the next level.
So, what do we consider as working capital? The list includes things such as leases, salaries, marketing costs, inventory, and everything in between. In laymen terms, it is all the expenses that allow you to go from month to month. As your CBD company starts to grow, these costs will progressively increase. This is especially true for salaries and utilities. Depending on your plants, marketing costs can also be a major expense. Getting a working capital loan straight away can be a bit harder because they are usually unsecured by collateral. In other words, most credit institutions are unwilling to provide such type of a loan without a thorough background check and even a business track record. You also need to consider that working capital loans tend to have higher costs in the form of interests.
Large or capital projects are the last type of CBD business loans that we want to mention. They are important for CBD companies that have been in business for a while, or for entrepreneurs who can support a large initial investment. Generally speaking, these loans have a requirement of at least 10 million dollars. They can be used for a lot of things, but in most cases, they are used for real estate and equipment. In most cases, loan institutions will take assets as collateral. Depending on your choice of a lender, you might have better or worse terms. Oftentimes, the interest rates are below 5% for long-term projects. The interest rate can go up if it’s for a short-term project. Getting a capital project loan can be really hard. They are usually reserved for a very, very small percentage of entrepreneurs.
How can I get a CBD loan?
Whether or not you’ll get a CBD loan usually depends on a type of loan you’re applying for.
Certain types of loans for CBD businesses are very hard to get, especially if you don’t have collateral. The company will also check your credit rating before giving you a chance.
First of all, you need to formulate a good business plan and to decide how much money you actually need.
You will also need to show the credit insinuations of how you mean to allocate these resources. The company will perform the initial analysis and give an appropriate suggestion based on your needs and wants.
If the loan institution thinks that you’re a good fit, you will enter the next step of negotiation during which you’ll determine what is the best way to proceed, and what type of options are ahead of you.
After that, you will need to present supporting documentation. When all of that is done, you can finally get your CBD business loan.