The Great Recession hit small business lending hard. According to the Small Business Administration (SBA), bank lending to small firms rose from $308 billion in June 1994 to a peak of $659 billion in June 2008. After the housing bubble burst, small business lending declined by almost 18 percent in June 2011 – and continued to fall.
Today, small businesses continue to struggle to find a traditional lender willing to offer their services and the loan amount these entrepreneurs need (big businesses apply for much larger loans, which banks are more comfortable with and willing to approve). One industry in particular has the biggest obstacle of all in securing working capital: the cannabis industry.
The cannabis industry probably has the least amount of funding options out of any industry at the moment. Even though countless new cannabis businesses are emerging and state legalization is being passed, there are almost no loans available to these entrepreneurs. A few financial institutions have braved the current restrictions and have serviced the cannabis industry, but credit is rarely available. Why? As of now, cannabis is still illegal at the federal level; the DEA lists marijuana as a Schedule I substance, alongside heroin, defined as “drugs with no currently accepted medical use and high potential for abuse”.
Where is current funding for the industry coming from?
“Unless you are migrating, leaving your career at Wall Street or Silicon Valley — which a lot of people have done, and have a nest egg, you will have to go through non-traditional routes to get your financing,” explained Super Bowl champion and cannabis entrepreneur Marvin Washington in a recent interview with Entrepreneur Magazine.
With banks and traditional financial institutions largely out of the question when it comes to funding, where are current and new cannabis businesses finding marijuana dispensary funding? A few of the main types of investors currently pouring money into the cannabis industry include: family offices, angel investors, high net worth individuals, business accelerators and incubators and industry-specific holding companies.
Alternative lenders like First American Merchant have also played a huge role in helping these businesses secure the cash they need to get up and running and operate smoothly. They also provide cannabis entrepreneurs access to capital in as little as 24 hours – much faster than a traditional lender would. Only time will tell if traditional lenders will choose to jump on board and support the industry with their lending services.
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has become a true asset for First American Merchant.