The cannabis industry is booming and full of opportunities. In 2020, US sales of cannabis increased by 67%. And that number will continue to increase, with more states legalizing marijuana use.
However, if you want to start a cannabis business, you now have more competition. Regardless of what part of the cannabis industry you join, you need to stand out from the crowd. And to have a good start, you need quality equipment.
It is harder to find cannabis equipment financing options because cannabis is not federally legalized. It is set to stay this way until the Safe Banking Act is passed. And even if this happens, you want to go with a lender experienced with cannabis business loans.
But what is cannabis equipment financing, and how does it work? Read on to learn seven important things to know.
1. Cannabis Financing Options
There are different types of cannabis business loans, and cannabis equipment financing is one of them. Other cannabis financing options include purchase order financing.
Usually, your cannabis financing options are from private investors or lending institutions. Investors are usually experienced in the cannabis industry and support the legalization of the plant.
2. Cannabis Equipment Financing
Marijuana equipment financing can apply to any equipment needed for your cannabis business. Often new businesses do not have the money to invest in all the quality equipment they need. However, cannabis equipment financing gives them the option to pay off equipment slowly with low-interest rates.
The types of cannabis equipment for financing can include:
- Retail fixtures
- Business systems
- Cultivation equipment
- Harvesting equipment
- Processing equipment
- Transport
There are usually different options for cannabis equipment financing, so you can pick what you need. For example, you might get to decide between a fixed or variable rate, depending on your risk tolerance level. You may also get to decide between different lengths of time to pay equipment off.
3. Who Qualifies for Cannabis Business Loans
Any cannabis business could qualify for cannabis equipment financing, but there are usually several requirements. These can include:
- Evidence need for cannabis equipment
- Business documents such as business bank statements and licenses
- Equipment invoices or list
- Proof of identity such as a driver’s license
- Complete Application
The lender will also look at your cannabis company and your financial history. For example, they will look at your credit score, business assets, liquidity, and cash. It is also ideal if you have experience and a detailed business plan.
Some businesses apply for cannabis equipment financing after being open for some time, whereas others will apply as a start-up with no experience. The details of your loan agreement may vary depending on your qualifying factors.
4. The Financing Details
Often the equipment acts as collateral as part of your marijuana equipment financing agreement. This can help if you do not have the best credit rating costs. The type of cannabis equipment you need may also impact lender options, as some will be willing to invest if you use value-retaining equipment.
Usually, once you agree on the cannabis equipment financing, you sign a lease agreement and complete any other paperwork. Then you can install the equipment and enjoy it!
5. Cost of Cannabis Equipment Financing
You will be paying an interest rate on cannabis equipment financing, like other types of financing. However, interest rates are usually low, and you can determine the stability of your loan.
While you will pay more over time, you make significant savings on upfront costs. How much interest you pay will depend on several factors, such as the length of your loan. You can also look out for cannabis financing options such as no prepayment penalties or delayed payback dates.
You can also save money because you will be able to invest in quality equipment. Investing in poor quality equipment will damage your cannabis business reputation but also your wallet. You will have to fix equipment more frequently and deal with business downtime as a result.
6. The Benefits
There are many benefits of marijuana equipment financing. It can help hedge against inflation risks, as your cash is not tied in with the expensive equipment.
For new businesses or those without a huge amount of disposable cash, cannabis financing options be a lifeline as it frees up cash flow. After all, it allows you to invest money in other parts of your business, such as marketing, employment, and other expenses. So, you can focus on the growth of your business without worrying about using poor equipment.
Instead, you will have the best quality equipment, which will improve your business in every way! Cannabis equipment financing also allows you to preserve your other lines of credit.
7. Cannabis Equipment Leasing vs. Cannabis Equipment Loans
It is important to note that cannabis equipment leasing is different from cannabis equipment loans. It allows you to access equipment over a certain period. You can pick the length of your lease to determine monthly payments and other benefits.
Now for most cannabis businesses, cannabis equipment loans makes more sense. You will eventually own the equipment outright, so your money is going towards the investment.
However, you might want to try equipment for a certain period, then upgrade. If this is the case, cannabis equipment leasing may be more suitable for you. There can be options to lease used equipment too, which can appeal to some businesses.
Cannabis equipment leasing also helps some businesses that might not qualify for cannabis equipment financing or need to replace equipment frequently. But if you want to scale your business fast, invest in cannabis equipment financing.
The Best Cannabis Equipment Financing
Cannabis equipment financing offers many benefits. However, not all cannabis business loans are created equally. You want to pick a company you can trust for your cannabis business lending solutions.
Hasanov Capital can help your cannabis company. We are not a financial institution, so we work with many different lenders to find the maximum funding options for you.
If you want the best lending solutions and investment opportunities, look no further. Contact our loan specialists for a free consultation to get started.
