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Getting Cannabis Business Loan in Michigan

May 16, 2024

The cannabis industry is experiencing significant growth due to expanding legalization efforts across the United States and internationally. As a result, many entrepreneurs are seeking financing options to start or expand their cannabis businesses. In Michigan, where cannabis was legalized for adult use in 2018, many business owners seek financing solutions to support their ventures. Federal limitations may discourage traditional lenders from offering loans to cannabis businesses. However, cannabis business owners in Michigan still have financing options, such as credit unions, specialized lenders, and specifically designed cannabis business loans. This blog dives into the financing options available to cannabis businesses in Michigan and offers practical tips on securing cannabis loans.

Federal Restrictions on Cannabis Businesses

Federal law classifies cannabis as a Schedule I drug controlled substance, preventing business owners from claiming standard tax deductions for normal operating expenses, unlike other industries. This applies even if the drug is legal in the state because federal law still bans it, which creates challenges for cannabis businesses seeking financing. Traditional lenders, such as banks, are subject to federal regulation and may be hesitant to offer loans to cannabis companies due to the risk of legal repercussions.

Credit Unions

While cannabis loans in Michigan remain challenging due to federal regulations, credit unions may offer a potential financing option for qualified businesses. Unlike traditional lenders, some credit unions have started offering loans to cannabis businesses, including dispensaries, which can be structured as small business loans. However, since cannabis remains illegal at the federal level, credit unions that offer loans to these businesses take on a higher risk than traditional lenders, which can translate to higher interest rates and fees for borrowers. It’s important for business owners to carefully evaluate the terms and fees associated with credit union loans before deciding to apply. Despite the higher interest rates, credit union loans may be a good option for businesses that don’t qualify for traditional loans due to the federally illegal status of cannabis.

Cannabis Business Loans

Cannabis business loans represent a viable financing option for cannabis companies in Michigan. These loans are provided by specialized lenders familiar with the unique challenges and opportunities associated with the cannabis industry. As a result, they often offer more flexible terms and lower interest rates compared to traditional financial institutions.

Before committing to a loan, it is crucial for business owners to examine the terms and associated costs again carefully. This review should include the interest rate, repayment schedule, fees, and penalties, as well as the company’s cash flow and its capacity to meet payment deadlines.

Additionally, it’s essential to partner with reputable lenders who are transparent about their lending practices and have a solid track record of collaborating with cannabis businesses. Due to cannabis’s federally illegal status, it’s important to ensure that lenders comply with state regulations and have the necessary licenses to operate in Michigan. 

Cash Advances

Cash advances are a common form of short-term financing used by cannabis business owners in Michigan to obtain quick funding. These advances provide immediate access to capital, which can be utilized for short-term needs such as purchasing inventory, upgrading equipment, or paying employee salaries. They are particularly beneficial due to their rapid processing; businesses can often receive an approval within 24 hours, making cash advances an attractive option for those needing urgent financial support.

However, cash advances are generally not suitable for businesses seeking long-term funding. They can carry high interest rates and fees, which may lead to substantial financial strain. It is crucial for business owners to thoroughly examine the terms and conditions of a cash advance, including all associated fees and interest rates, to accurately assess the total cost of the loan before proceeding.

Cannabis Real Estate Loans

Cannabis real estate loans cater specifically to property acquisition within the cannabis industry. These loans are ideal for Michigan business owners who:

  • Already own their dispensary buildings.
  • Seek to purchase new properties for expansion.

Real estate loans offer several advantages compared to other financing options. They are typically considered long-term, translating to:

  • Lower interest rates: Compared to other loans, cannabis real estate loans often boast lower interest rates. This translates to significant cost savings over the loan’s lifetime, making it a more budget-friendly financing solution for your business.
  • Longer repayment terms: This provides more time for your business to establish itself before making significant loan payments, which is particularly beneficial for startups.

Factors Lenders Consider When Evaluating Applications

Securing a cannabis business loan in Michigan requires meeting specific criteria set by lenders. These criteria often include:

  • Credit Score: A strong credit history demonstrates your ability to manage finances responsibly.
  • Business Plan: A well-defined plan outlining your business goals, strategies, and financial projections increases confidence in your venture’s success.
  • Cash Flow: Demonstrating consistent and positive cash flow assures lenders of your ability to repay the loan.

To strengthen your application, be prepared with all necessary documentation and maintain transparency with the lender. Open communication about your business and its financial needs builds trust and improves your chances of loan approval.

The Application Process

The application process for cannabis business loans can vary depending on the lender. Some lenders offer online applications, while others require in-person meetings. It’s essential to carefully review the application requirements and provide all necessary documentation to ensure a smooth application process.

Financing Options for Michigan Cannabis Businesses

Michigan cannabis businesses seeking loans have financing options beyond traditional banks, which are limited due to federal regulations. Credit unions, specialized lenders, and cannabis-specific loans offer viable alternatives.

Carefully evaluate the terms and fees of each option before committing. When applying, be prepared with all required documentation. With the right financing solutions in place, cannabis business owners can continue to grow and thrive in the ever-expanding cannabis industry.