cbd sba loanDecember 15, 2021
At a time of great uncertainty for the cannabis industry, Vicente Sederberg’s attorneys and cannabis industry specialists are communicating regularly with regulators and industry leaders, and closely monitoring the COVID-19 situation.
Watch this timely regulatory update and look into the various Small Business Administration (SBA) programs available for cannabis and hemp businesses in the wake of the COVID-19 crisis featuring attorneys from Vicente Sederberg and Burns & Levinson.
Stay up-to-date on the latest state and national COVID-19 updates affecting marijuana and hemp businesses on our Coronavirus and Cannabis: Monitoring the Impact page.
[Webinar] Coronavirus and Cannabis: SBA Loans and Lending for Hemp and CBD Businesses.
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Interest in Cannabidiol , commonly known as CBD, has skyrocketed in recent years as people have turned to this cannabis-derived substance for a variety of medical ailments. While the FDA has approved CBD as a treatment for seizures caused by two forms of epilepsy, many use CBD to treat a variety of different conditions from anxiety to pain disorders, though the FDA has not yet approved it as a treatment for these conditions. Nonetheless, the 2018 federal legalization of hemp and hemp-derived products (with restrictions) has sparked a boom in CBD-related commerce.
With a revolving line of credit, the total amount you can borrow (referred to as a credit facility ) gets replenished as you repay the money you’ve actually borrowed. This way, you only borrow the money you need while keeping a financial safety net in place that you can draw from should a pressing need arise. The main caveat here is that a line of credit can be difficult to qualify for — perhaps even harder to qualify for than a traditional business loan. CBD businesses with at least six months of business history are much more likely to qualify.
Unfortunately, an opaque thicket of legal and regulatory complications still makes it difficult for a CBD business to get approved for a loan. In this article, we’re going to delve into the factors that complicate a CBD business’s quest for funding and help direct you to the types of loans a CBD business can qualify for — and where to look for them.
Why Most Lenders Refuse To Loan To CBD Businesses.
A merchant cash advance can be a good option for a CBD startup without any business history or a CBD business struggling to qualify for a traditional business loan. Merchant cash advances provide you with a short-term cash infusion. In exchange, you repay the advance either by sending the lender a percentage of your sales on a daily basis (though some providers may let you pay on weekly or monthly) or by repaying a fixed amount on a daily (or weekly/monthly) basis.
Here are some additional resources for those of you in the CBD industry or the cannabis industry more generally. If you’re just starting out or if you want to build up your current operation, have a look!
Studies have shown that the average business costs about $30,000 to start. Learn more in our guide on how to calculate startup costs for your new business.
Unfortunately, there are plenty of shady business loan servicers out there that gravitate toward businesses considered high-risk. To assess whether a given lender is legitimate and whether the loans they offer are reasonable, you’ll need to do your due diligence:
Yes, you might be able to get a CBD business loan without collateral. If you do not have specific collateral to pledge, you might be able to find a loan with a blanket lien.
Other online lenders offer loan products to borrowers considered “high-risk.” These lenders may be more likely to lend to you than your standard online lender. Read our article about high-risk business loans to get a better idea of this part of the lending industry.
Where To Find CBD Business Loans.
Even though growing and cultivating hemp has been fully legal for two years, lending institutions haven’t built up much institutional memory when it comes to navigating the complexities that still exist surrounding the sale of products derived from the Cannabis sativa plant. Hence, many banks still shy away from lending to CBD companies, while other lenders might deal with some sectors of the CBD industry but not others.
As it happens, you’re much more likely to find an online lender willing to work with your CBD business. Try seeking a loan from one of the following online sources:
We’ve discussed alternatives to “regular” business loans here, but depending on where you look (we’ll get to that part in a moment), you may, in fact, be able to qualify for a traditional business term loan.
It’s always helpful to read a professional reviewer’s opinion of a lender, as you’ll gain insight from the research done on the company’s history and from comparisons to the leading lenders in the field. To that end, check out our full list of small business loan reviews, You can filter your search and get results fitting your business situation by entering your time in business, your credit score, and other factors. Pretty cool, huh?
Best Types Of Loans For CBD Businesses.
Regardless of the headaches involved, it is possible for you to get a loan for your CBD business. Let’s discuss the types of loans best suited for companies dealing in CBD products.
As I’ve mentioned, banks tend to be skittish when it comes to dealing with anything related to the historically-stigmatized (not to mention criminalized) Cannabis sativa plant. If you have a good working relationship with your current bank, you may want to discuss the possibility of getting a loan for your CBD business with them, particularly if they have a track record of being progressive on other issues. Don’t be surprised if they turn you down, however — and if you have reason to believe that even broaching the subject with your bank might jeopardize your existing relationship with them, skip this step altogether and look elsewhere for funding.
Some online lenders specialize in crowdfunded loans. Getting a crowdfunded loan — also known as peer-to-peer (P2P) lending or debt crowdfunding — involves having a lending platform offer your proposed loan terms to a crowd of loan investors. You then pay back these investors with interest.
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Individual investors may be more inclined to work with a CBD business than larger, more cautious lending institutions. That’s why debt crowdfunding sites are worth checking out for owners of CBD businesses. Check out our explainer piece on debt crowdfunding to learn more.