The cannabis industry is unique unto itself. While the cannabis plant has been legally used for many millennia (mostly in the manufacturing realm), the latest overwhelming interest and demand for the cannabis plant relates directly to its medical and recreational properties.
Recently, the medicinal and recreational uses of marijuana and cannabidiol (a sister derivative of the plant) have become ‘front & center’ news through advocacy groups touting the plant’s new (and previously known) healing and relaxing benefits.
Since 2000, thirty-three states have revised their marijuana laws to allow for medicinal or recreational use. Other states have decriminalized for possession, should an individual be carrying only a small amount.
The recent revisions to long-standing marijuana laws have created a need to celebrate for the many advocates working to achieve these goals. The recent hoopla and press surrounding this emerging market have created some interesting and innovative business opportunities.
What is an Unsecured Cannabis Business Line of Credit?
Unsecured cannabis business lines of credit are financial instruments that are used by the owners/entrepreneurs of new and existing cannabis businesses.
Like any other line of credit (or credit card for that matter), the unsecured cannabis business line of credit is a revolving, reusable line of credit with a preset maximum limit. Funds become available for re-use, once they have been repaid.
Here are some important features of unsecured cannabis business lines of credit –
- There are no restrictions on how the funds can be used.
- It is revolving debt and available for use when repaid.
- Lines of credit are underwritten to more lenient guidelines than traditional business loans. These business lines of credit are a great fit for entrepreneurs and startups in the cannabis industry.
- The line of credit is underwritten based on the borrower/business owner’s personal credit history, although any type of positive business credit history is helpful to gain approval.
- There is no collateral required.
- It is a no-income verification line of credit.
- It offers quicker approvals than traditional business lines of credit.
- It is a great source for cash flow issues, and to set aside emergency funds.
- Its maximum credit limits typically exceed that of a standard business or personal credit card.
- The line of credit is available during the line’s access period — the length of the access period can be negotiated with a creditor or lender.
The unsecured cannabis business line of credit is also a smart way to build a credit history for the cannabis business. A strong credit history begins to open doors to future financial opportunities. It cannot be overemphasized how important this is for the future growth of a business.
How to Get Approved for a Unsecured Cannabis Business Line of Credit
When first designed, unsecured cannabis business lines of credit were only available through the more non-traditional funding outlets –the creative niche of microlenders. However, even large banks (who are remarkably reluctant to change) have begun to recognize the potential profits of this unmet financing need.
Typically, when applying for a unsecured cannabis business line of credit, the borrower must submit the following documentation –
- Any business licenses, if required by local or state law.
- The applicant’s credit history. This is a primary underwriting factor that is used to assess the loan scenario’s strength for approval. The applicant’s credit card usage should be solid and account for several years of judicious use because underwriters know that this credit history is an accurate predictor of the borrower’s future use of revolving funds.
- The legal paperwork that identifies the business and the business owner.
- A written statement from the business owner/applicant indicating the future plans of the business and how the business intends to use the unsecured cannabis business line of credit.
Unsecured Cannabis Business Line of Credit Financing — The Pros & Cons
Financial instruments, like the unsecured cannabis business line of credit, are created to meet a specific financial need. In this case, the need is to provide financing to individuals who have –
- Little, if any, business credit history.
- No collateral.
- An inability (or unwillingness) to verify business or personal income.
As a result, specialty financing is often a great choice for those who possess that very need. However, the possibility exists that specialty financing may not be an ideal fit for certain lending situations. The following is a recap of the pros and cons of cannabis business lines of credit –
- It is a revolving account. The funds are available again when repaid.
- The business is not required to have a business credit history.
- Lenient underwriting guidelines allow for easier approvals.
- The account is a great buffering tool for cash flow issues.
- Consistent timely payments build a business credit history.
- A smart source of emergency reserve funds.
- Credit limits typically exceed those of business credit cards.
It is noted that unsecured cannabis business lines of credit fall within the lending category of high-risk financing. This is due to the fact there is no requirement for an income check, a business history, or collateral. For borrowers and entrepreneurs, the risky nature of the line of credit translates to higher interest rates. As such, cannabis business lines of credit are ill-suited for long term financing objectives.
What Type of Cannabis Business Would Benefit from an Unsecured Cannabis Business Line of Credit?
Unsecured cannabis business lines of credit meet a variety of financing needs in cannabis businesses and the industry. A cannabis business can be distinguished between two fundamental types of businesses — those who cultivate cannabis and those who sell it. Within each category, there are many business options and opportunities. The cannabis industry’s potential has yet to be defined.
Cannabis Business that Sell
There are many ancillary businesses that support the cannabis industry. These include, in part, –
- A Dispensary — the storefront that distributes the cannabis.
- An Edible Company — the company that creates cannabis-infused candy treats.
- A Cannabis Accessories Manufacturer — the maker of pipes and grinders.
- A Dispensary Security Services — it is a cash business, security is very important.
Cannabis Business that Cultivate
Cannabis cultivators are known as the ‘plant touchers’ of the cannabis sector. Cannabis cultivators focus on the science of growing hardier, higher yielding plants to bring to market. These cannabis industry workers include –
- The Breeder — develops better quality cannabis seeds.
- The Cultivator — grows the cannabis plants. This is highly regulated by each state.
- The Extractor — converts raw plant material to concentrates used in the marketplace. Requires a great deal of equipment.
The cannabis industry’s gross sales are now reaching into the billions of dollars per year, with expectations of tremendous growth. So, essentially, the cannabis industry’s potential has yet to be defined. At this time, it is likely that the growing demand for cannabis products will open significant opportunities for entrepreneurs seeking to establish themselves in an emerging sector of the economy.
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