As you start your cannabis business, more expenses can arise than you have cash to cover. As a new business, you’re still building up your cash reserves, and in the interim you might need an operating capital loan to keep your business afloat. You’re not alone. According to Fundera, a third of all small businesses launch with less than $5,000 in their reserves. This is across all small businesses, not just within the cannabis industry.
Industry Source Consulting (INSO) completely understands this scenario. As a consulting firm immersed in all aspects of running a cannabis business, we understand the real costs of starting your business. Not only can we help you finance or lease the bigger purchases associated with running your own cannabis business, but we’re able to provide operating capital loans as well. This give you permanent funding through debt or equity to keep your business afloat.
While most of your start-up capital goes to securing special equipment and necessary supplies to get product out the door, an operating capital loan can help with the day-to-day costs. This type of loan is ideal for short-term operational needs such as payroll or rent. It is often used to consolidate smaller debts or pay off multiple vendors so you’re only responsible for a single payment. An operating capital loan gives you the cash you need to finance everyday operations while you get your business off the ground.
The two primary ways to get a loan if you’ve tapped out first-round investors, friends, or family is to go to a bank or an alternative lender. Banks often hesitate when it comes to loaning money to someone in the cannabis industry. The risk can feel extremely high to banks who are typically concerned that it’s still illegal on the federal level to sell marijuana. Although the states where it’s legal aren’t incurring any battles with the federal government at this time, banks tend to be more conservative lenders.
Online or alternative lenders, anyone not a bank, may not share these same concerns, Like INSO, other lenders may have enough industry knowledge to feel more confident in lending money. Interest rates will most likely be higher outside of a bank, but qualifications are typically the same. According to Value Penguin, interest rates for alternate vendors range from 13 percent – 71 percent. A hefty disparity between the two ends of the spectrum.
Regardless of who loans the money or the terms of the loan, prepare to demonstrate your qualifications as a borrower. You might be asked about your credit score, current business finances, and projected financials, among other things. This is all at the lender’s discretion.
This biggest difference between these two options for a capital loan is ownership. A loan based on debt is simply a line of credit that’s paid back based on pre-established terms and schedules. Payments include both the principal loan and interest, and must be completed by the set date. Failure to meet the parameters of the loan can result in the lender taking possession of valuable items in your business to cover the balance. For cannabis business owners, this could mean a seizure of equipment.
An equity loan gives the lender a partial ownership in your business. In exchange for a percentage of the business, or a set amount of stock, a lender gives you the finances you need. This is a great solution unless you plan on taking your business public or are considering merging with another company. Giving up a piece of your business allows you to repay the loan through the profits from the business rather than have a set monthly principal and interest payment.
Once you’ve been approved for an operations capital loan from INSO, it’s time to look at the other services we offer for additional ways we can help your business succeed. Our support services can help you acquire the right equipment, establish marketing and human resources strategies and processes, and manage logistics. We offer end-to-end assistance in order to get your cannabis business off the ground and running smoothly. Contact us today to learn more about our complete suite of services, starting with ensuring you have the right funds for day-to-day operations.