Whether your intention for 2020 is to begin a whole new business or grow your current cannabis sales, there are many different means to obtain the required equipment. Of course, first, think about whether used or new equipment is more suitable in your circumstances. Of course, new equipment usually comes with all the latest features and top performance. However, used cannabis equipment will typically be of lower quality, with some being as low as 50% of the new purchase price.
Most new equipment is purchased from investors who take advantage of cannabis equipment financing options, which include angel investors, venture capitalists and banks. These sources do not normally require any money up-front, although there may be ongoing costs associated with equipment lease payments. There is also no guarantee that the capital will remain available to finance your business until the end of your current contract. Depending on your location, this may not be an issue, but if you have to locate outside of your home country, you may face language or cultural barriers that affect your ability to obtain capital. In addition, it can be difficult to find a local source that can readily provide you with the capital amount you need. In these cases, it can be helpful to seek out loans from local funds, such as local banks, and to find out what your local tax laws may be regarding capital gains on your home equity loan.
Capital obtained through capital markets, such as angel investors and venture capitalists, represents a significant amount of funding for small businesses, especially those in the early days of operations. As such, it is imperative that potential suppliers, manufacturers, wholesalers and distributors fully understand the financing options available to them. The most important aspect of cannabis equipment financing is making sure that it is obtained from a reliable source that will be able to hold up to unexpected delays or unforeseen charges, such as federal tax obligations. Lenders should be able to provide detailed explanations of their lending policies and their process for collection.
A growing number of specialty lenders are opening doors to capital for cannabis businesses in Colorado, allowing entrepreneurs more efficient and flexible financing solutions. These alternative lenders work in several ways to facilitate capital transfers and to minimize the risks involved. When working with these companies, you will need to provide detailed information on your own personal business plans and operational costs. Your application should be accompanied by a well-written business plan that identifies each of the funding sources used to finance your business. This plan should also detail any trade secrets or inventions that you intend to protect from the acquisition of third parties.
In addition to working with a number of capital companies, some small businesses are opting to work with a local banker. While local banks are familiar with working with cannabis companies, you should be prepared to provide them with information about your business plan, including financial projections for the next five years. In many cases, you can even arrange for a pre-approval for your cannabis equipment financing. However, local bankers may not be able to provide you with the level of financing you need to expand and/or buy additional equipment to expand your operations.
Private investors are increasingly using capital from their portfolios in order to finance start-up and operations costs for cannabis companies. Many private equity firms focus their investment capital resources on high end marijuana producers and distributors. Because these are relatively immature companies, few traditional banking institutions offer loans for these types of investments. If you are interested in obtaining capital from a private investor, you should do your research to find which firm has an established working relationship with an organization like yours. For example, you may want to search for "hedge fund is" or "private placements" to find potential investors who are willing to put money into your company on a specialized note. There are also many online lists of potential investors willing to pursue this type of investment.
Many cannabis businesses also choose to obtain financing in the form of "green" financing. Green financing involves obtaining a credit facility from a non-traditional financial institution in order to fund growing and extraction processes. This type of finance structure is becoming more popular as a number of U.S. states and municipalities are passing laws that mandate a percentage of the cost of growing and extractions be spent in local communities. In addition to being considered a tax increase, this type of finance also has the added benefit of providing a sustainable source of income for a community's economy. With the right partner, a private investor can provide seed money to help finance the infrastructure needed for extraction, thus helping a growing business stay focused on improving the productivity and profit of its employees and facilities.
As your business begins to expand, it may become necessary to take out a loan. Because interest rates on loans are generally higher for cannabis businesses, it is likely that you will have to focus much of your business finances on paying off debt, growing operations, and securing new loans. Many entrepreneurs shy away from higher risk cannabis business financing options, because they believe that a higher risk equals a lower return on investment. However, if you use your own judgement, a good real estate agent, and access to capital from family or friends you can find a safe and secure line of credit that allows you to keep making timely payments.
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