The cannabis industry, in recent years, has experienced huge growth. The legalization of cannabis in various states has drawn the attention of business owners and has enabled new entrepreneurs to get into the market.
Similar to any industry, the cannabis business is also spread into various parts. Both the production and manufacturing processes need heavy machinery for premium large-scale produce.
In addition, purchasing equipment can cause hefty costs that might hurt your pocket and cause unnecessary expenses. But wait! Don’t give up on your dreams yet. Though these are rocky waters, the future seems bright for the industry.
As a result, various lender pools, including private equity funds, lenders, etc., have shown a keen interest in financing the cannabis industry. This article is a comprehensive guide for beginners to jumpstart a successful business in the cannabis industry.
What is cannabis equipment financing?
Before you begin, learning some of the jargon is most likely the best option for you, especially when you are a beginner. Cannabis equipment financing refers to loan options that can help you acquire long-term access to machinery required for the cannabis business.
Due to the risky nature of the industry, national banks often reject such requests, however, you can find a lot of private lenders who will readily provide you with financing as well as leasing. In addition, these private lender pools mostly offer equipment leases that give you long-term access to machinery with minimal costs. Unlike short-term leases, long-term leases are a better option since they have cheap monthly payments.
Leasing vs Financing: The perfect choice
As a beginner in the industry, you might have to make some decisions that might be perplexing. Buying, financing, or leasing is a common dilemma among budding cannabis businesses. While many agree on purchasing the equipment, it might not be the right call for your business, since it is a huge expense and comes with unnecessary costs that can make or break your business.
Since machinery can show defects, leasing can help businesses to replace the product frequently. However, if you have the capital and need a long-term solution, purchasing can be an option for you. However, spending the principal outright on equipment might not be a wise idea. You can use the money in other areas of the business to reach other goals as well.
In contrast, cannabis equipment loans provide you with funds with monthly payment plans and extremely low-interest rates. You can also refinance old equipment to bring in cash, which is a good security plan. Also, refinancing can help you get better terms and loan rates, however, you may have to look for refinance lenders.
Alternatively, cannabis equipment financing involves choosing between a fixed or a dynamic rate. A variable rate can be a good option for you if you have a higher level of risk tolerance, as the monthly payments are lower, but they can surge at any time. Comparatively, fixed loan rates have higher interest rates, but they are more stable.
How can I qualify for cannabis equipment financing?
Cannabis equipment financing is quite similar to other loan options.
Besides, you can follow some steps to get your application approved:
- You need to decide the type of equipment or identify if you require an upgrade.
- Get a quote for your equipment from a lender.
- Fill up an application form with your lender.
- Submit the relevant documents requested by your lender.
- If required, you might have to submit additional documents as well.
Upon approval, you have to sign a loan or a lease agreement that acknowledges the terms and conditions set by the lender. Moreover, the application and approval procedure is easy and fast. Once approved, you can expect the funds in just 24 hours.
Are there benefits to cannabis equipment loans?
Opting for an equipment loan can act as leverage. How? Well, these loans come with various perks and lucrative offers that can help you save even more money. Unlike others, lenders in cannabis equipment financing offer the total capital required for the product. In addition, loaning cannabis equipment is secured. This means that you can collateralize your equipment and still keep your business authority intact.
Additionally, you can find a variety of options, so you should never settle for the first offer you see. You may want to keep your options open since different vendors can offer better deals and keeping your options open can help you make the right decision.
Outdoor Produce equipment
Since the cannabis industry is a huge sea of opportunities, businesses have the option to choose between the production and manufacturing of the plant. However, if you pick cultivation and breeding, ensuring the quality and yield is very imperative. Cultivation can be done in two ways: indoor and outdoor. Consequently, the need for equipment also varies with the method of cultivation. Outdoor grow equipment is cheaper, user-friendly, and is mostly used for wide-scale production. Seeds, pots, soil, PH, and PPM testers are eligible to be funded by cannabis business loans.
Indoor Produce equipment
Compared to outdoor options, indoor cultivation is much more controlled and requires more capital than the outdoor cultivation method. For this method, the loan amount is usually higher since you need a lot more equipment.
What are the pros and cons of cannabis equipment financing?
Now that you have understood how cannabis equipment financing can help, here are some of the pros and cons that may help you make the right decision for your business:
- Easy cash flow is a great advantage for any business. Since cannabis machinery can cost a fortune, financing can help you spread the cost evenly into monthly payments with lower interest amounts.
- To qualify for the equipment loan, you do not need any collateral. In such cases, your physical asset, i.e, the machinery acts as collateral.
- Cannabis equipment can be only used to pay for the machinery. You cannot use the capital for other expenses such as payroll, rent, etc.
- Since the cannabis industry has strict rules and regulations, it also has to adhere to federal law. Moreover, it is always subjected to risks, and hence, they have higher rates than conventional loans.
The cannabis business is a promising industry, making it a good option for new entrepreneurs to venture into. Now that you have s clear understanding of cannabis equipment financing, we hope you can make the right choice and brainstorm your business strategy right away!