Cannabis business loans: How to get financing

If you’re looking to start or expand a cannabis business, one major barrier you’ll face is that many banks are reluctant to work within the cannabis industry. So if you’re searching for a cannabis business loan, you might find it difficult to get the funding you need. But if you don’t qualify for a bank loan, there are other legitimate lenders that offer cannabis business loans.

Where can I get cannabis business loans in Canada?

You have multiple options to choose from when searching for a cannabis business loan. Let’s break down your main options to look at the pros and cons of each.

Banks

While consumers may turn to banks as the most traditional route to source a loan, most of Canada’s major banks are reluctant to dole out funding for the cannabusiness sector. But there are some banks, such as BMO and Alterna Bank, that offer a full suite of banking services to cannabis businesses.

Banks offer large loan amounts and competitive rates, but you’ll need to be prepared for a slow turnaround time, and watch out for extra fees.

• Pros

  • High loan amounts with low interest rates. If your cannabis business is eligible for a loan from a bank, you can take advantage of higher loan amounts with lower interest rates and longer terms than you’d find with many other lenders.
  • Variety of loan options. Whether you want a secured or unsecured cannabis business loan, a business line of credit, a business credit card or a home equity loan, you can turn to a string of loan options to suit your needs.
  • Peace of mind. Dealing with a reputable and established financial institution offers peace of mind for business owners. It can also be convenient if you do all your day-to-day business banking with the same bank.
    

• Cons

  • Some major banks won’t fund cannabis business loans. Banks still generally view cannabis as a high-risk industry, so some providers are reluctant to fund cannabis businesses.
  • Strict eligibility criteria. Banks have strict time-in-business and minimum-annual-revenue requirements for business applicants. You may also have to secure your business loan with personal assets.
  • Slow. Banks tend to have slower underwriting times than online lenders, so you’ll have to wait longer to access funds.
    

Credit unions

Credit unions tend to have more flexibility when providing loans to the cannabis industry compared to big banks. Because credit unions are controlled by their members, the acceptance of your application depends on whether the institution is conservative or open to funding cannabis businesses.

• Pros

  • Competitive rates. Credit union loans come with competitive interest rates and flexible repayment options.
  • CSBFP loans available. Most Canadian credit unions deliver the Canada Small Business Financing Program, so you can apply for a government-backed term loan of up to $1 million.
  • Business banking. Like banks, credit unions offer a full range of business banking services to customers.

• Cons

  • Smaller loan amounts. Credit union business loans tend to have smaller maximum limits than bank loans.
  • Slow approval and funding. Credit unions offer slower loan turnaround times than online lenders.
  • You must be a member to qualify. You’ll need to become a credit union member to get approved for a loan.
    

Online lenders

Online lenders will approve loans to cannabis businesses on a case-by-case basis. You’ll typically need to have been in business for at least several months and meet minimum revenue requirements. The good news is that it’s easy to apply and loans are funded quickly. But the bad news is that your loan might come with a high rate.

• Pros

  • Easy application process. It’s quick and easy to apply for a loan online.
  • Easier to qualify for than bank loans. Online lenders have more lenient eligibility criteria than banks, so it’s easier to qualify for funding.
  • Fast access to funds. Online lenders have faster approval and funding times than traditional lenders.

• Cons

  • Watch out for high interest rates and fees. Business loans from online lenders may come with higher interest rates compared to banks. The loan may also come with extra fees, so check the fine print.
  • Sketchy lenders. Scammers target small business owners who struggle to qualify for loans from traditional lenders. Do your research to make sure you’re dealing with a reputable online lender before applying.

Alternatives to cannabis business loans

Micro loans

Microfinance programs are run by non-profit organizations and credit unions. They provide small loans of up to $20,000 or $25,000 to small businesses that struggle to qualify for funding from traditional sources.

Crowdfunding

Crowdfunding is a way for businesses to raise funds from a large group of people who are interested in your mission or supporting your startup idea. You may be able to turn to crowdfunding websites like Kickstarter and GoFundMe to raise capital for your cannabusiness. Some websites also allow you to offer investors equity or shares in your business. Read more about cannabis crowdfunding sites.

Private equity firms

Financial firms may be willing to offer short-term, high-interest loans or funding for a large stake in your company. This gives you the potential to raise a significant amount of capital, but if you’re not willing to give up some of your ownership, look elsewhere for funding.

Venture capitalists

Venture capitalists are wealthy investors interested in helping startups and small businesses grow, often in exchange for equity. That means you get to avoid worrying about repaying loans and interest charges, and you’ll receive mentoring, advice, training and the right networking to help your business grow. However, it’ll also mean you lose some control over your company.

Angel investors

Similar to venture capitalists, angel investors help businesses get started and typically deal with smaller amounts of money. While you won’t see them loan out large sums like venture capitalists or private equity firms, their involvement may be the financial boost you need to get your company off the ground.

Government grants

Another option is to apply for federal or provincial government small business grants and loans. Programs and agencies such as FedDev Ontario provide funding for small businesses to help support economic growth.

What types of cannabis business loans are available in Canada?

If you’re looking for cannabis financing in Canada, you have several options:

Business term loans

Business term loans provide your company with a lump sum that you can use to cover any business-related expenses. You repay the funds, plus interest and fees, in monthly installments over terms ranging from six months to several years.

Canada Small Business Financing Program (CSBFP) loans

CSBFP loans of up to $1 million and business lines of credit of up to $150,000 are available through this government program. Businesses with annual revenue of less than $10 million are eligible, and you can apply through a bank or credit union that participates in the program.

Business lines of credit

A business line of credit allows you to borrow funds up to a predefined limit and only pay interest on the money you borrow. This flexibility means you can access cash up to your credit limit continuously over the course of many years.

Commercial mortgages

These secured loans can be used to buy or refinance the buildings or land you need to run your business.

Equipment leases and loans

Equipment loans can be used to pay for hardware, software, vehicles and more. Your equipment will generally serve as collateral to secure the loan.

Personal loans

If you’ve got a good credit history, you could apply for a personal loan, which you might be able to use to start or fund your cannabis business—although this will depend on whether the lender allows it or not. Keep in mind that you’ll be personally responsible for paying back a personal loan, even if you use it for business purposes.

Merchant cash advances

A merchant cash advance lets you borrow money in exchange for a percentage of your daily credit card and debit sales. Lenders determine the amount you can borrow by looking at your historical sales data. The amount you’ll pay back month to month will vary based on your sales. It’s usually a percentage of your sales, including a “cost of doing business” fee.

How much do cannabis business loans cost?

Like any loan, there are two main costs you’ll need to watch out for when comparing loans.

• Interest. Business loan interest rates in Canada typically start around the lender’s prime rate and go up to 30% or higher.
• Fees. Business loans may come with fees for taking out the loan. The most common fee is an origination fee. Lenders usually charge between 0% and 5% and often deduct it from the amount you borrow.

Lenders express your loan’s interest and fees in one percentage called the annual percentage rate (APR). If a loan doesn’t come with any fees, the APR and interest rate are the same. If it does, the APR will be higher to reflect those additional costs.

How to qualify for a cannabis business loan

To apply for cannabis business financing, you’ll need to provide information regarding your business plan, expenses, revenue and more. While requirements will vary between providers, you may need to:

• Meet minimum monthly revenue requirements
• Meet minimum time in business requirements
• Meet credit score requirements
• Meet age and residency requirements
• Have a business bank account
• Provide a detailed business plan
• Have no criminal record and pass a background check

Do I need a business plan to get a cannabis business loan?

Having a detailed business plan that demonstrates your knowledge and experience in the industry will help you get a loan for your cannabis business. You need to present a clear outline of your business’s short- and long-term goals, why you need financing to reach those goals and how you’ll pay back your loan or help your investors make money on their involvement.

Ultimately, writing a detailed business plan will help you demonstrate the feasibility of your venture and what financing will be used for. Contents might include:

• A company description. Clarify what your business does and who it serves. Consider which competitive advantages your business will have.
• Market analysis. Is there a great market demand for your business? Who will be your competitors? Are there trends that your business is looking to capitalize on?
• Organization and management. Choose a legal structure for your business. Create an organizational chart to show who will lead your business.
• Marketing and sales. How will you find customers, and what defines a sale—or the point at which you make money—in your business?
• Funding request. Describe how much funding you’ll need, what you need it for and how you’ll deploy the capital.
• Financial projections. What will your revenue and expenses look like? Make financial forecasts for at least the next three years and explain why the numbers make sense.

What can I use a cannabis business loan for?

Cannabis business loans in Canada are a lot like other business loans. You can use them to cover almost any cost related to your business. Common expenses include:

• Cannabis business licensing fees. Starting a new business? You’ll need to get a business licence.
• Grow house costs. Setting up and maintaining a grow house is expensive. You have to have a strong grip on the indoor climate to get the best product. Costs include land, buildings, electricity, water and much more.
• Dispensary costs. Running a dispensary can come with daily recurring costs that your new business might not be able to afford like paying your rent and bills.
• Hiring new staff. Bringing new people on board can increase productivity and future revenue, but you’ll need to be able to pay their salaries first.
• Paying for equipment. Some cannabis business lenders offer options for leasing or buying essential equipment that you’ll need to keep things running smoothly.
• Rent, land or real estate costs. You’ll need a place for your business to operate. A commercial mortgage can help you rent or buy your first piece of real estate or expand your current operation.

What to watch out for with cannabis loans

• Hard to find funding. Many banks and traditional lenders won’t provide loans to businesses in the cannabis sector, so you may need to consider online and alternative lenders.
• Eligibility requirements. Many lenders have minimum time-in-business and minimum revenue requirements that you’ll need to meet to qualify for funding. This can make it difficult for startups to access business financing.
• Additional fees. Some lenders may charge additional fees to cannabis businesses, so check the fine print for full details on how much your loan will cost.
• Sketchy lenders. Scammers try to take advantage of unsuspecting business owners who struggle to qualify for loans from traditional sources. Research any lender thoroughly to make sure it’s reputable before you apply for a loan.

Bottom line

Cannabis business loans are harder to come by than financing for traditional businesses, but there are options available. Loans are available from some banks, credit unions and online lenders, so compare a wide range of cannabis business loans to find the best fit for your needs.

Frequently asked questions

• How much money do you need to start a cannabis business in Canada?

  How much you'll need to invest when starting a business will depend on the province or territory and city it's located in. You'll also need to consider how much product you expect to sell, whether you'll have an online presence, how you'll advertise, how many employees you'll have and more.

  By taking the time to create a solid business plan, you can answer many of these questions and anticipate how much capital you'll need to start a dispensary.

• Can I ship marijuana to customers?

  Yes. Licensed sellers can ship pot via Canada Post to customers. You'll need to make sure you follow all government regulations regarding labelling, packaging and parcel tracking. Canada Post requires proof of age when delivering the product and won't leave the package unless someone of the legal age is there to receive it. You can learn more about shipping marijuana as a business here.

• Can you get online cannabis business loans in Canada?

  Yes. There are multiple online lenders that offer loans to cannabis businesses. These lenders tend to have more lenient eligibility requirements than traditional lenders like banks, but be aware that their loans might come with higher interest rates.

• Can you get cannabis business loans for startups?

  Yes, but not from all lenders. Many lenders have minimum time-in-business requirements and minimum monthly revenue requirements that you'll need to meet to qualify for funding. However, loans for startups are available from alternative lenders and microfinance programs. You can find out more about borrowing options in our guide to business loans for startups.

• Can you get cannabis business loans in Canada with bad credit?

  Yes, it's possible to get a cannabis business loan from an online lender if you have bad credit. You'll need to provide a detailed business plan to qualify for funding and provide details of your industry experience, financial projections and potential business growth to boost your chance of approval. However, bad credit loans come with higher interest rates.

• How do I get a cannabis business loan to open a dispensary?

  Getting a loan to open a dispensary when you already have an existing business is different from getting a loan when you're just starting out. If you have an existing business that's generating revenue, you can get a loan from a bank that's open to financing the cannabis industry (such as BMO) or from an alternative lender. You'll need to meet credit score, business revenue and time-in-business requirements.

  If you don't have an existing business, getting a loan will be more difficult. Your experience and finances will need to be strong for you to get approved for cannabis business financing. For example, you'll need to provide a detailed business plan, demonstrate that you have cannabis industry experience, have a good to excellent credit score and have assets to provide as collateral. You may also need a cosigner and may be required to show that you have a personal investment in your company. Learn more in our guide to starting a cannabis business.

To make sure you get accurate and helpful information, this guide has been edited by Leanne Escobal as part of our fact-checking process.

Written by

Tim Falk

Writer

Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio