Arizona cannabis business loans are hard to come by, if you want to find financing for your “growing business,” you’ll need to get creative.
The bank is off-limits when it comes to the marijuana industry because you are distributing federally controlled substances. For this reason, a bank risks losing FDIC coverage if they lend to a medical or recreational marijuana business. So what if you don’t take out a loan in your company’s name? What’s the risk for the bank if they give you a personal loan to buy your first facility?
Technically, if you are in the marijuana industry under federal law you are a drug dealer. If a bank associates with you even on a personal level, they put themselves at risk of “money laundering.”
So how do all those other cannabis startups get the funds they need to “grow,” their businesses? Maybe they have rich uncles, but more than likely they made use of one of the following:
• Equity funding
• Hard money
Let us consider the first option: the fabled “crowdfunding.” Hopefully, you have a passing notion about how Kickstarter works. Before pinning all your hopes on crowdfunding, ask yourself, “how interesting is growing marijuana?”
There is only one way to grow cannabis, and the prospect doesn’t exactly capture the public’s imagination. If your Kickstarter proposal doesn’t engage potential investors, it is going to be a long time until you get the money you need.
So, crowdfunding is not a reliable way to start a “growing” business.
The other option is equity funding, in this situation you sell a stake in your business to a like-minded investor. With equity deals, you’ll be obligated to give your partner a fixed percentage of your profits into the indefinite future.
Equity funding is the most expensive way to start a business, that 10 percent you pledge for that pitiful 100 grand or so might be worth millions in a few years. So funding your first growing operation remains a quandary, the bank is off limits, crowdfunding is not reliable, and equity funding might be too expensive for your tastes. What if there was a way to buy your first growing facility that was both reliable and less expensive?
So far we haven’t discussed the last item on the list, hard money.
Many ignore hard money as a means to fund startups. These loans are asset-based, high-interest and short-term. You don’t want a bunch of high-interest debt when you’re just starting a business right? Well think of it this way, the faster you can pay off the debt, the lower the expense to your new business. So in a way hard money is almost tailor-made for the cannabis industry. You know when your crop is going to mature. If you play your cards right you can line up a buyer ahead of time and your initial profits should pay off your initial debt.
With hard money and cannabis startups, it’s wise to follow these steps:
• Borrow against the value of your first grow facility, plant your first crop
• Wait a couple of months as your product matures
• Sell your crop (which if done right, pays off your initial loan)
In the end, you own your grow facility free and clear. With hard money, you didn’t have to wait on crowdfunding, and you still have full ownership of your business. Don’t overlook the benefits of hard money for your “growing business.”
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.