Asset Only Lending Options for Cannabis Companies
I’m not sure I can answer why, but our asset only lending programs have been the most popular by far as we round out the year so I figured, let’s talk about it!
What are Asset Only Cannabis Loans?
To say these are asset only cannabis loans may be a bit disingenuous. In reality, these types of lenders are industry agnostic to some extent.
What they are in reality are real estate speculators. They will lend a lower loan-to-value (LTV) on your asset with a repayment term of one to three years. Their bet is that either they get a nice return on their money over a short term or they own an asset at a value they can liquidate to make themselves whole and hopefully generate a profit.
Due to the upside they are open to otherwise riskier borrower profiles. Rather than requiring strong historical financials, strong guarantors and strong collateral they typically may only require the asset with a limited personal guarantor, someone to serve papers to if the worst happens and there is a default on the loan.
For companies that are asset heavy but may be pre or early revenue, have weak financials and don’t want to pledge more than a limited personal guarantee this can be a great option to leverage an opportunity to deploy the capital for your cannabis business.
What do Asset Only Lenders Consider Good Collateral?
Asset based lenders will of course lend on commercial real estate, some will even lend on personal real estate. Due note, the property type, location and commercial use value all come into play when using real estate as collateral for your cannabis loan.
Other collateral types can include diamonds, fine art and expensive airplanes to name a few examples.
What are Typical Rates and Terms Offered?
Keep in mind this is a snapshot in time. Private money rates don’t tend to fluctuate as much as traditional lenders because they don’t borrow from the Federal Reserve.
With that in mind you might see loan-to-values of thirty percent to fifty percent of the collateral value. Interest rates may range from thirteen percent to fifteen percent.
Repayment terms range from one year to three years. The financing is structured as interest only with a balloon payment due at the end.
What are the Benefits of Asset Only Cannabis Financing?
This type of financing for cannabis companies has some distinct advantages depending on what matters most to the client at the time of their financing request.
- Comfortable financing riskier borrower profiles
- Can close faster than traditional lenders
- May only require broker price opinions for real estate
- May require limited personal guarantors rather than full guarantees from ownership
- Finance more property types and locations
- Reasonable rates for high risk cannabis borrowers
Where Does this Type of Cannabis Financing Fit?
Situations where this type of financing shines include pre or early revenue companies that are asset heavy and revenue lite.
Scenarios where speed and flexibility is more important than rate or length of repayment.
Times where owners or investors might own property outside the company they want to leverage for the company.
Or perhaps the ownership is diluted making personal guarantors difficult, or owners want to limit their exposure to the company’s debt.
All great reasons to explore the asset based cannabis financing program.
How Can I Find Out if My Company Qualifies for this Type of Cannabis Loan?
That is where we can help! We work with a variety of asset based cannabis lenders and can help you determine what programs you might qualify for and what the range of rates and terms may look like.
Contact us today to schedule your no-obligation discovery call.
