A hemp business loan is a type of loan that’s specifically designed for cannabis-related businesses. Because marijuana is federally illegal in the United States (and most other countries), traditional banks have hesitated to offer loans to cannabis-related businesses.
Even hemp businesses that operate legally under state laws can have trouble finding financing. This has led to a rise in alternative financing options, which we’ll discuss in this post.
The Basics of Hemp Business Loans
Hemp business loans are designed to meet the needs of cannabis-related businesses. Because most traditional banks are unwilling to work with these businesses, private lenders, investment firms, and even state-backed programs offer hemp business loans.
Hemp business loans can be used for a variety of purposes, including:
- Working capital
- Equipment and inventory
- Real estate
Hemp business loans typically have more requirements than traditional loans. This is because lenders consider the cannabis industry to carry a high risk. However, several options are available, so it’s important to shop around to find the best loan for your business.
How to Find Hemp Business Loans
The first step in finding the right hemp business loan is knowing what you need. A variety of loan products are available, each with its own terms and conditions. Before shopping for a loan, it’s important to understand the differences.
Some common types of hemp business loans include:
- Lines of credit: A line of credit is a loan that allows you to borrow money up to a certain limit. You can use the funds as needed and pay interest only on the amount of money you use.
- Term loans: A term loan gives you a lump sum of cash that you must repay over a set period of time. These loans usually have fixed interest rates and monthly payments.
- Purchase money financing: Purchase money financing provides advance funds based on your current purchase orders or sales contracts.
- Invoice financing: Invoice financing is a loan that’s based on your accounts receivable.
Understanding Hemp Business Loan Terms
Once you know what type of loan you need, it’s important to understand the terms and conditions. These can vary widely from lender to lender, so it’s important to compare offers before you choose a provider.
Some common terms you’ll see include:
- Loan amount: the total amount of money you’re borrowing
- Interest rate: the percentage of the loan amount that you’ll be charged in interest
- Loan duration: the length of time you have to repay the loan
- Repayment schedule: the schedule of payments you’ll make to repay the loan
- Collateral: the property or assets that you pledge as security for the loan
- Personal guarantee: a promise from the borrower to personally repay the loan if the business cannot
- Origination fee: a fee charged by the lender for processing the loan
- Prepayment penalty: a penalty that may be charged if you repay the loan early
Be sure to understand all the terms and conditions before you agree to a loan. If you have any questions, be sure to ask the lender before you sign anything.
How to Choose a Lender
When you’re looking for a hemp business loan, it’s important to choose a quality lender. When you’re choosing a lender, there are several factors to consider. Expertise and experience are two of the most important ones.
Bespoke Financial is a leader in the cannabis financing space. We have a deep understanding of the industry and the unique challenges businesses face in this sector. We offer a variety of loan products that are tailored to meet the needs of our clients.
If you’re looking for a hemp business loan, contact us today to learn more about our products and services.