Starting a small business might not sound like it costs a lot of money. When you take a closer look, though, you often find that even the smallest hemp and cannabis startups need at least half a million dollars before they can even begin operations. Financing from 420 Loans makes it possible for you to access the money you need to pay for essentials.
Unfortunately, not everyone can qualify for a cannabis business loan. Even fewer people get business loans with low interest rates. Typically, businesses can expect to pay anywhere from 7 to 15 percent interest. Qualifying for a lower rate will make it much easier for you to repay your loan while generating profits.
The following guide will help you learn how to submit a successful cannabis business loan application. Follow these steps to improve your chances of getting a low-interest loan that helps your new or growing business thrive.
Maintain an Excellent Credit Rating
Although private lenders aren’t forced to follow as many rules as banks and credit unions, they do take their decisions seriously. They must, after all, protect their investments.
Having an excellent credit rating, typically defined as a number between 800 and 850, will make your cannabis business loan application more appealing to lenders. If you have a credit score over 800, you have a good chance of securing a low-interest loan that will help fund your business.
If you do not have an excellent score, you can start taking steps to improve your rating. Most people and businesses find that they can raise their scores quickly by:
- Lowering the amount of debt that they carry (especially high-interest credit card debt)
- Contact the major credit bureaus to request a copy of your credit history.
- Review your credit history to find any inaccuracies that could pull down your credit score.
- Make all payments on time (if you must delay payments, always pay them within 29 days of the deadline).
Depending on your current rating, you could improve your score within a few months. The effort and time you invest will make it easier for your cannabis business lender to give you an affordable loan that meets your needs.
Do you need additional help making your loan application appealing to lenders? Contact 420 Loans to talk to a consultant. Your consultant might have advice that improves your qualifications quickly so you can get a loan and start your cannabis business.
Save Money for a Down Payment
A down payment can help your loan application stand out from others. Having money for a down payment is especially helpful when you want to purchase real estate, vehicles, and equipment.
How much money should you put down for your cannabis loan? Ideally, you can commit to 30 percent of the overall cost. That’s not a small amount of money when you’re starting or growing a cannabis business. Buying real estate for hemp or cannabis cultivation can easily cost $1 million. That means saving $300,000.
Accumulating the money you need for a down payment probably sounds challenging. You get several benefits from a sizable down payment though. When you commit your own money, the lender will know that you take the business opportunity seriously. That makes it more likely that you will get a favorable interest rate. Even one point lower could save you tens of thousands of dollars in interest payments.
For New Businesses: Write an Effective Business Plan
Lenders want to know how you plan to use the money they give you. They also want to know that you have a good idea for turning your loan into a profitable business.
Your business plan should include:
- A stand-alone executive summary that explains uses four to five pages to explain how you plan to grow a successful cannabis business.
- A management team section that describes the skills and experience of the people on your management team.
- A value proposition that explains how your company will fill an unmet market need.
- A section that describes opportunities in the market, such as targeting a specific audience or releasing a product that will appeal to new consumers. This section should include data that backs up your claims.
- A description of your operating plan that tells lenders how you will build a profitable business structure that streamlines processes and maximizes efficiencies.
If you already have a location or license for your cannabis business, include that in your business plan. It demonstrates that you have already been through much of the industry’s bureaucracy. The location might also play a role in your business’s success.
For Existing Businesses: Write an Expansion Plan
If you want a cannabis business loan to expand an existing brand, you need to provide financials from the last several years. Essentially, you want to use accurate data to show the lenders that your business can turn a loan into profits.
How do you plan to use the money you borrow? What impact will the changes have on revenues and brand recognition?
Anticipate questions lenders might ask. It’s always better to put lenders at ease early in the process. A favorable impression puts you ahead of other applicants who have not taken these extra steps.
Review Your Opportunities for the Best Cannabis Business Loan
Whether you want to buy a greenhouse, open a new storefront, or purchase extraction equipment to start making new cannabis products, 420 Loans can help you reach your goal.
Get started today by filling out the 420 Loans application to let our consultants know about your business plans. We’ll do our best to pair you with a loan that helps your business succeed while keeping interest and fees as low as possible.