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CBD business loans
Funding for hemp farms, oil dispensaries and more.
Funding your CBD business can be a bit complicated, thanks to the gray legal area it falls into and relative newness of the industry. While not as difficult as finding funding for a cannabis business, you still might have to look to alternative lenders to get the financing you need.
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- What loan options are available for CBD businesses?
- How to decide which loan offer is best for my business
- What common business expenses can I cover with financing?
- What do I need to apply?
- What challenges might I face as a CBD business owner?
- 4 tips to succeed in the CBD industry
- Bottom line
- Frequently asked questions
What loan options are available for CBD businesses?
You might not be able to walk into your local bank and get approved for funding for your CBD business. Instead, consider one these types of financing — depending on your business’s needs:
- Term loans.A lump sum for general business use like expanding production, that you pay back plus interest in installments, usually over up to 10 years. You can find a term loan with or without collateral.
- Lines of credit. Access to funds you can draw from as your business needs, designed to help with ongoing expenses like restocking inventory. You usually repay it in installments like a term loan or with minimum monthly payments like a credit card, depending on the lender.
- Equipment and vehicle loans. A term loan backed by the equipment or vehicles you need to extract, process, package and transport your CBD products. Typically, you can borrow between 80% and 100% of the value of the equipment, which the lender uses as collateral for the loan.
- Real estate loans. A term loan specifically for buying land, a warehouse or retail space to create and sell your goods — sometimes as high as $500 million.
- Bridge loans. A short-term loan your company can use to keep operations going while you wait for a larger loan to come through, usually as a real estate loan. This can help cover immediate costs associated with buying, say, a new storefront or packaging factory.
- Merchant cash advances. This advance on your future sales is a high-cost type of working capital with few requirements, and may be helpful to companies producing CBD. You repay the advance plus a fixed fee with a percentage of your daily sales.
Pro tip: Look into cannabis lenders
Many lenders that specialize in cannabis financing also work with CBD businesses. Most are available online and in a select few states — mainly where cannabis is legal. You can learn more about how they work by checking out our guide to financing your cannabis business.
How to decide which loan offer is best for my business
To find the best loan for your business, start by asking yourself what you need the money for. Need a new extraction system? An equipment loan might be the way to go. Want to buy some more land to grow your hemp? You might want to look into real estate and bridge loans.
Also ask yourself what your priorities are. If you’re interested in the lowest cost, you might have to spend some more time on your application — and put up collateral. After you’ve compared lenders and narrowed down your options, reach out to get a more personalized offer.
What common business expenses can I cover with financing?
You can finance the following expenses for your CBD business:
- Working capital. Term loans, lines of credit, bridge loans and merchant cash advances can help provide your business with the funds it needs to keep operations running when you need help with overhead expenses.
- Equipment. You can use an equipment loan to buy hemp harvesting machines, extraction equipment and other tools you need to make your product.
- Vehicles and tractors. A business auto loan can buy vehicles to cultivate and transport hemp and the finished CBD product.
- Real estate. Specialized real estate loans and leases can help you afford the upfront cost of buying land, a warehouse or retail space.
- Inventory and raw materials. A term loan or line of credit can help make sure you have the supplies you need to make your products, such as oil and packaging.
What do I need to apply?
CBD business loans typically require fewer documents than your standard business loan. While it depends on the type of financing you’re applying for and the lender, you generally need to provide the following:
- Credit report. Rather than pulling your credit themselves, many hemp and cannabis business lenders request a copy of your personal credit report when you apply for a loan.
- Bank statements. Lenders often use three to six months of bank statements to assess your revenue and determine how much you can afford to borrow.
Why do CBD lenders ask for my credit report?
Lenders that specialize in CBD and cannabis business loans ask to see your credit report to make sure you meet the following criteria:
- Good credit. You and other business partners typically need to have a credit score around 700 to qualify.
- Record of on-time repayments. Some lenders won’t work with borrowers who have a record of late repayments.
- No bankruptcies. A bankruptcy in the past 10 years could disqualify you from financing.
What challenges might I face as a CBD business owner?
There are two main challenges that CBD business owners face: Legal issues and limited time in business.
CBD falls into a legal gray area
While the 2018 Farm Bill reduced restrictions on cultivating CBD products, the federal government, states and even cities have their own laws regulating CBD — such as banning its addition to food or beverages.
This makes CBD a high-risk industry in the eyes of banks — many are afraid they’d be shut down or lose their FDIC insurance for working with a business from that industry. Others simply don’t want to risk working with a business that might be raided or shut down.
That can limit your options to lenders that offer cannabis funding or work specifically with businesses in high-risk industries. Because they come with higher risk to the lender, these options are more expensive than your traditional business loan.
Most CBD businesses are startups
CBD products are relatively new to the mainstream, so chances are your business is a startup. Traditionally, lenders prefer to work with businesses that have been around for at least three years with steady revenue.
Qualifying for affordable funding before you can meet those requirements can be difficult at a bank, credit union and even some online lenders — even in the safest industries. Often, your best bet is to work with a lender that specializes in startup financing or to look to business loan alternatives.
4 tips to succeed in the CBD industry
Thinking of starting a hemp farm? Already own a CBD dispensary? Here are a few pointers to maximize your success:
- Step up your transparency. While CBD isn’t regulated, savvy consumers will look for ways to verify what’s in your product. Gain trust by having your product analyzed and posting the certificate on your website.
- Stick to your brand. The best way to set yourself apart from the flood of new CBD businesses is to find what’s special about your product and focus on that niche.
- Stay on top of the regulations in your area. Laws can change frequently — and on the local and federal level. Find ways to stay on top of regulations to avoid getting raided or shut down.
- Be selective about who you work with. Don’t cut corners on your manufacturers or suppliers if you aren’t a vertically integrated enterprise. You’ll have a substandard product and could even get shut down should regulations become more formalized.
Bottom line
Financing a CBD business isn’t as difficult as finding cannabis funding, but you can still run into some roadblocks. Make sure your lender is willing to work with businesses in your industry before you apply. You can learn more about your business financing options by checking out our guide to business loans.
Frequently asked questions
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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