Interest in Cannabidiol, commonly known as CBD, has skyrocketed in recent years as people have considered this cannabis-derived substance for a variety of medical ailments. As the FDA has approved CBD like a strategy to seizures brought on by two types of epilepsy, many use CBD to deal with a variety of different conditions from anxiety to pain disorders, though the FDA hasn't yet approved it as being cure of these conditions. Nonetheless, the 2022 federal legalization of hemp and hemp-derived products (with restrictions) has sparked a boom in CBD-related commerce.
Unfortunately, an opaque thicket of legal and regulatory complications still causes it to be hard for a CBD business to obtain approved for a loan. In this article, we’re going to explore the factors that complicate a CBD business’s quest for funding and help lead you to the kinds of loans a CBD business can be eligible for a — where to look for them.
Why Most Lenders Refuse To Loan To CBD Businesses
If you’re running a CBD business, it's not easy to obtain a business loan. You’ve likely already discovered this if you have a CBD business, and you’ve attempted to secure funding for it.
Until the enactment from the 2022 Farm Bill, hemp (which legally must contain 0.3% or less of THC, the psychoactive element of cannabis that creates the “high”) only agreed to be as illegal in the US at the federal level as psychoactive cannabis, as the Controlled Substances Act didn't differentiate forwards and backwards. This means that until just 2 yrs ago, it had been illegal for federally-insured financial institutions to lend to sellers of CBD, despite the existence of various state laws establishing state-legal markets for CBD- and THC-containing products.
Even though growing and cultivating hemp continues to be fully legal for 2 years, lending institutions haven’t developed much institutional memory when it comes to navigating the reasons that also exist all around the sale of products based on the Cannabis sativa plant. Hence, a lot of lenders still shy away from lending to CBD companies, while other lenders might deal with some sectors of the CBD industry but not others.
Regardless from the headaches involved, it is possible for you to get a loan for the CBD business. Let’s discuss the types of loans best suited for businesses dealing in CBD products.
Best Types Of Loans For CBD Businesses
The type of loan you’ll want to look for will depend on the type of expenses you intend to place the money toward. Let’s discuss the different types of loans a CBD business would typically pursue.
Equipment Loans
With a tool loan, the equipment you use the loan to buy can be used as collateral for that loan. If you’re in the business of accelerating hemp, you might need a tool loan to buy machines to reap and extract the flower. If yours is really a smaller boutique operation, and also you want to grow indoors, you could utilize an equipment loan to purchase grow lights, inline fans, along with other hydroponic supplies. Once you’ve fully repaid the loan, the gear is going to be yours to help keep. However, should you default, say goodbye to the supplies.
Merchant Cash Advances
A merchant cash advance can be a good option for any CBD startup without any business history or a CBD business struggling to be eligible for a a conventional business loan. Merchant payday loans supply you with a short-term cash infusion. As a swap, you repay the advance either by sending the lender a percentage of your sales every day (though some providers will alow you pay on weekly or monthly) or by repaying a fixed amount on a daily (or weekly/monthly) basis.
Merchant payday loans aren't typically recommended as an option of first resort due to the pricey fees charged and also the fast repayment required. But for the CBD business not able to qualify for a traditional loan, a merchant cash loan can be a workable short-term funding solution.
Lines Of Credit
If you don’t need a large lump sum of money and instead desire a credit line you can tap into similar to a credit card, a company credit line may work for the CBD business.
With a revolving credit line, the quantity you can borrow (known as a credit facility) gets replenished as you repay the money you’ve actually borrowed. By doing this, you only borrow the cash you'll need and keep an economic back-up in place that you can draw from should a pressing need arise. The main caveat here is that the credit line can be difficult to be eligible for a — perhaps even harder to be eligible for a than a traditional business loan. CBD businesses with at least 6 months of business history tend to be more likely to qualify.
Term Loans
We’ve discussed alternatives to “regular” loans here, but based on where you look (we’ll reach that part in just a minute), you might, actually, have the ability to qualify for a traditional business term loan.
You might be seeking to expand your operations significantly or participate in other money-intensive projects. If so, a term loan covers your requirements more effectively than some of the “alternative” types of loans, a few of which involve smaller amounts of money and shorter repayment terms. Of course, without any business history, traditional loans are quite difficult to obtain, so CBD startups may need to look for an additional kind of funding.
Where To Find CBD Business Loans
As I’ve mentioned, banks are usually skittish with regards to dealing with anything related to the historically-stigmatized (as well as criminalized) Cannabis sativa plant. For those who have a great working relationship with your current bank, you may want to discuss the possibility of obtaining a loan for your CBD business with them, especially if they have a history of being progressive on other issues. Don’t be amazed if they turn you down, however — and when you have reason to believe that even broaching the topic together with your bank might jeopardize your existing relationship with them, skip this task altogether and appear elsewhere for funding.
As it happens, you’re more likely to locate a web-based lender prepared to use your CBD business. Try seeking financing from one of the following online sources:
Cannabis Lenders
A simple online search will turn up numerous companies offering funding for qualifying cannabis-related businesses. While some of these lenders focus on recreational or medical cannabis and never CBD businesses specifically, they may still be prepared to work with you. Speak to a cannabis lender to ascertain if yours may be the sort of business they’d like to use (and the other way around).
High-Risk Lenders
Other online lenders offer loan products to borrowers considered “high-risk.” These lenders might be more prone to give loan to you than your standard online lender. Read our article about high-risk loans to get a better concept of this area of the lending industry.
Crowdfunded Loans
Some online lenders specialize in crowdfunded loans. Obtaining a crowdfunded loan — also referred to as peer-to-peer (P2P) lending or debt crowdfunding — involves using a lending platform offer your proposed loans to a crowd of loan investors. You then pay back these investors with interest.
Individual investors may be very likely to work with a CBD business than larger, more cautious lending institutions. That’s why debt crowdfunding sites count looking at for owners of CBD businesses. Check out our explainer piece on debt crowdfunding to learn more.
How To Make Sure You’re Obtaining a Good Deal
Unfortunately, there are many shady business loan servicers out there that gravitate toward businesses considered high-risk. To assess whether a given lender is legitimate and if the loans they offer are reasonable, you’ll have to do your research:
Check The Lender’s Online Presence
Any fly-by-night outfit can produce a cheap website touting its lending services. A genuinely convincing online presence is harder to fake, however. Look for any social media accounts associated with the company. Search for news articles and press releases that mention the company. Look at the company’s About page on its website (it should get one!) and see if it seems legit. See if you can find names and/or profiles of the people who run the organization. Lastly, search for user reviews and comments about the company. While most every lender has its own detractors, you need to find at least some proof of the best company by reading customer feedback.
Examine The entire Price of Borrowing
When considering a lender’s loan products, it’s important to take a look at more than just what your monthly obligations is going to be. Look out for any other fees you will probably find your self on the hook for, including:
- Origination fees
- Closing fees
- Application fees
- Packaging fees
- Referral fees
- Guarantee fees
- Assessment fees
- Prepayment penalties
Check Reviews Of The Lender
It’s always helpful to read a professional reviewer’s opinion of a lender, as you’ll gain insight in the research done around the company’s background and from comparisons towards the leading lenders in the field. To that end, take a look at our full list of small business loan reviews, You are able to filter your search and obtain results fitting your company situation by entering your time and effort in business, your credit rating, and other factors. Pretty cool, huh?
We’ve also had a handy help guide to the very best small company lenders of 2022, along with our small business loan comparison chart.
Other Helpful information on CBD Businesses
Here are a few additional resources for people within the CBD industry or the cannabis industry more generally. If you’re just starting out or if you wish to develop your present operation, take a look!
- Everything You should know About Getting a CBD Credit card merchant account & The 6 Best CBD Payment Processors
- How To Finance A Medicinal marijuana Dispensary
- Need A free account For Your Medical Marijuana Dispensary?
- Need A High-Risk Merchant Account? Here’s The 6 Best Payment Processors To Work With
- What Are High-Risk Loans & Where Will i Acquire one?
CBD Business Loan FAQs
Can one obtain a CBD business loan without collateral?
Yes, you might be able to get a CBD business loan without collateral. If you don't have specific collateral to pledge, you may be capable of finding a loan with a blanket lien.
How much loan should be enough to begin a CBD business?
Studies have shown the average business costs about $30,000 to start. Find out more in our guide regarding how to calculate startup costs for your new business.
How long does it take to get a CBD loan approved?
A CBD loan might be approved within one business day, or so long as two or three months. The amount of time it takes will depend on what type of lender you’re dealing with, how quickly you are able to supply necessary paperwork, and other factors.
