How to Borrow Money to Fund Your Marijuana Business (Part 1: Plan)

How to Borrow Money to Fund Your Marijuana Business (Part 1: Plan)

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Plan, prepare and present in order to fund your marijuana business.

One of the questions I get asked most frequently is “How do I borrow money to fund my marijuana business?” Whether you are seeking a loan or lease to start a new business, expand an existing business, obtain equipment, make tenant improvements, or build-out a cultivation facility or store, there are several keys to unlock the secrets for getting the funds.

As a veteran in commercial financing for marijuana businesses, having arranged my first loan in 2009 for a dispensary, I’ve learned there are three steps critically important to any successful funding venture.

Step 1: Plan.
Step 2: Prepare your documents.
Step 3: Present to the right people.

In this post, we will cover the planning phase for obtaining funding and how to identify the right sources for you.

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The first consideration is whether you will be seeking debt or equity. To understand which lending sources to consider, start by asking yourself several questions. For what will the money be used? What is the total amount required? How long before you will be able to start repaying the loan? What source(s) might be available to obtain the money?

After answering a few important questions about your business and researching the financing sources available, consider whether a debt- or equity-based funding source is right for you and your business. In the third article in this series, I will provide a list of the top ten sources of lending for marijuana businesses.

As you investigate funding sources, keep in mind lenders look at things very differently than investors do. By nature, lenders are focused on the return on their investment with regular payments over a period of time at a set rate. Investors are looking to hit a home run two out of every ten times they supply capital and expect to have to wait for a future exit event (merger, buyout, going public), which may or may not occur.

With these two very different mentalities at play, it is crucial to understand your audience and prepare accordingly. Debt-based lenders are interested in seeing accurate financials that, ideally, are reviewed or audited by a certified public accountant. They count on the accuracy of your income statement to repay the loan and confirm your balance sheet accurately reflects any liabilities.

Once you have identified the type of lending source, it is time to prepare your documents and move forward in the process. In the next article, we will review the type of information you will need to gather before you meet with prospective lending sources as well as how to organize your presentation.

Scott Jordan is the director of business development for Dynamic Alternative Finance. He has arranged more than $24 million in loans and equipment leases for cannabis business owners over the past two years. Jordan is a commercial finance expert known throughout the marijuana industry. He has been interviewed by local TV and radio stations, authored articles, and been a featured speaker at national conferences. Reach him at 303.754.2050 or s.Jordan@dynaltfinance.com.