How Cannabis Business Owners Can Avoid Predatory Lending

The cannabis industry in America is similar to an exciting and adventurous thrill ride where you will experience twist and turns; rise and fall and a tumultuous time, if you don't have a solid plan. In the cannabis industry, there is a lot of potential for making large amounts of cash. However, because of the rift between state law and federal law, there is still a bit of uncertainty that exists. With medical and recreational cannabis being legal in multiple states, the cannabis industry is growing and so the demand is also risings as many people seek to become cannabis business owners.

The Feds

Cannabis, according to the federal government is an illegal substance. The conflict does not seem to be ending any time soon. Despite the obvious challenges, the cannabis industry and the cannabis business owners are forging forward, knowing the risks, but still determined to do legal business for the sake of medical cannabis patients and avid recreational users; not to mention making money as entrepreneurs. In the next five years, things look like they may change for those cannabis business owners who want to jump on the gravy train. However, once more challenge is securing funds from reliable institutions.

Obtaining Capital

When you operate a cannabis business, it requires you to obtain capital so you can purchase everything you need to successfully operate it. To borrow money is the most challenging aspect of starting a cannabis business. It can be quite tough because a vast number of financial institutions are unable to offer financing due to the Schedule 1 classification that is not yet removed by the feds. Banks will usually not accept loan applications for cannabis related business. And so, cannabis business owners find themselves in a bind and only able to access a small number of predatory lenders. These particular lenders are not the best choices since they charge high finance charges. However, cannabis business owners may not be able to seek other forms of financing because of fewer other options.

Financial Sources

While the climate for investment is improving, there are many cannabis business owners that resort to predatory lending, which is often crafty and dubious. Some people resort to asking family members for loans. Others turn to other sources while others might rely on their credit card. Some cannabis business owners will often try to get funding from angel investors, private equity firms, bridge loans, crowd funding, equipment leases, real estate second mortgages working capital and venture capitalist. With such sources of financing, you can secure funds, but at higher finance charges than the traditional banks.

Gaining Popularity

Predatory lending gained its popularity in the early months of the year 2000. Lenders will often offer loans that are unfair, beyond the norm and misleading. Once you sign up for these loans as a borrower, you will have to agree to the terms of paying large interest rates. Because of the lack of financing in the traditional banking world, cannabis business owners are quite vulnerable to predatory lending. Many times, the interest rate could go up to twenty percent or more. There are ways that you can avoid these lenders.

Final Summary

Some of the ways to avoid predatory lending is to recognize when you are applying for a predatory loan. Get all your business documents together. Pay attention to the interest rates. Do your due diligence. Make sure that you read the fine print. Ask questions and get the facts right. If you are not pleased with the details, all you have to do is to just get up and walk out. Revisit the other choices that you have to see which one best suit your personal and business needs.