If you’re a business owner or entrepreneur in the cannabis space you will likely experience the need for capital to expand your existing business or launch a new venture. The most common types of financing requests we see are for equipment, working capital or real estate loans. Whether you’ve been down the funding route before or are currently seeking money, there are a few keys to being a smart borrower.
Plan, Prepare, Present
I speak frequently about the need to start the financing process off on the right foot. The three P’s are critical to getting financing to start or grow your marijuana business -- plan, prepare and then present to the right people.
During the planning phase, the first step is to consider if you will be seeking debt or equity (more on this to come). Next, gather important financial documents, including your credit report, tax returns, personal financial statements and any current company financials (if you are currently generating revenue).
During the prep phase, you will want to develop an executive summary. An effective executive summary is a concise one- to two-page pitch describing your business, the funding you are seeking and how the funding will be utilized. Before you can present, you must have a solid grasp on your audience, which is why it’s important to determine early on the type of financing that may be suitable for the stage and trajectory of your business.
Debt or Equity?
It is key to determine whether you be seeking debt or equity. This is a critical step in the process as it affects which lending sources you may consider.
Investors and lenders look at things with a very different eye. Investors supply capital to a business based on a future exit event, such as a buyout, merger or IPO and take a percentage of the business. Lenders, on the other hand, are focused on the return on their investment with regular payments over a certain period of time at a set rate.
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