The passage of the Agriculture Improvement Act of 2018, better known as the “2018 Farm Bill,” legalized the cultivation of hemp and declassified it as a Schedule I controlled substance. The passage of the 2018 Farm Bill brought with it a host of new business opportunities for CBD entrepreneurs, who had already begun popping up in states where the sale of hemp-derived products, like CBD, had already been decriminalized. For CBD business owners looking to get approved for CBD loans, figuring out financing can be a bit confusing, as the business still occupies a bit of a legal grey area due to the differing state and local regulations surrounding hemp. However, if you know where to find a CBD loan and you’re prepared for the application, you’ll have the funding you need for your business in no time.
Step 1: Find a CBD Lender
While some traditional financial institutions may be willing to work with CBD business owners, because of the legal grey area still surrounding the industry, you’ll likely have better luck working with a commercial lender that deals specifically with businesses in the CBD industry and understands the financing needs of these businesses. Not only will you have an easier time obtaining funding from a lender who understands the CBD industry, you’ll also have a wider variety of financing products that work for your business. CBD businesses often struggle with long cashflow collection cycles, irregular collections on invoices, a lack of viable lenders and dilutive equity capital raises, making financing a vital part of the equation. Look for commercial lenders specializing in cannabis and CBD loans.
Step 2: Examine Your Options
CBD business loans generally fall into one of two categories: debt funding and equity funding. Debt funding involves taking out a loan or using a business credit card, thereby accumulating debt and paying it back over time plus interest; this is the type of financing most people think of when they think of loans. On the other hand, equity financing involves trading shares of the company in exchange for financing, and the lender or investor gets their money back as either dividends or profit when the company is sold. Within these two categories, loans for CBD businesses usually come in the form of private loans, real estate loans, equipment leasing loans, and dispensary cash advances. The type of loan that you choose will depend on what you will be using the financing for, your ability to pay back the loan, and the existing value of your business if any. Your lender can help you work through your options.
Step 3: Gather Your Financial Information
Before applying for a CBD loan, make sure you have all of your financial ducks in a row. Ask your lender about exactly what documentation they will need to see in order to approve you for a loan. In general, lenders will want to see an excellent credit score (usually 700 or higher) and credit history with excellent repayment records and no bankruptcies. Lenders will also ask for three to six months worth of bank statements, balance sheets, income statements, and your capital needs. As an added layer of protection due to the risky nature of the CBD industry, lenders may also want to review a list of your key management personnel and a list of all active licenses held. If you have a lower credit score or other mistakes in your financial past, consider offering collateral or taking out loans like equipment loans that hold the purchased item as collateral until the loan is repaid, like a car loan. The more organized you are prior to beginning the application process, the more quickly your loan will be processed.
Step 4: Apply For the Loan
Once you have gathered all of the financial information you need to prove your creditworthiness, apply for your loan. Lenders in the CBD industry understand that you need your capital quickly, so you could receive a decision in a week or less.