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 specific barriers along the way.
Why it might be hard to get approved
Until recently, CBD products were illegal in most of the US. Banks and other financial institutions are still learning about the industry and potential risks.
Unlike some traditional products and services, getting a loan for CBD is tough. Things get even more complicated 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 enhance 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 hemp business loans can be placed in 4 main categories: CBD business loans for equipment, working capital, real estate, and large projects.
- Real estate
Given that you need proper soil to grow cannabis and hemp, it makes sense that real estate loans will be the first entry on our list. But, 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 hemp business loans, you will be able to buy or refinance a good property for your CBD project.
- Equipment
Of course, you will also need money for all the CBD equipment. If you’re growing cannabis indoors or in particular conditions, these costs can go all the way up.
Not to mention hydroponic systems and growing marijuana in cargo crates. Therefore, 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 more money to produce better results.
This is especially true for micro-companies that want to take their business to the next level.
- Working capital
So, what do we consider as working capital? The list includes leases, salaries, marketing costs, inventory, and everything in between.
In laymen’s terms, all the expenses 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 significant 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 CBD business 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 interest.
- Capital projects
We want to mention large or capital projects are the last type of CBD business loans. They are essential for CBD companies that have been in business for a while or for entrepreneurs who can support a large initial investment.
Generally speaking, these hemp business loans require at least 10 million dollars. They can be used for many 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.
Often, 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 business loan usually depends on the 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. So 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 decide how much money you actually need.
You will also need to show the credit insinuations of how you mean to allocate these resources. Then, 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 the best way to proceed is and what type of options are ahead of you.
After that, you will need to present supporting documentation. You can finally get your CBD business loan when all of that is done.
Do you have any questions? Would you like to request a quote? Then, click the button below and send us an email!