When investors hesitate to fund a Cannabis business-
Merchant cash advance is no more something that businesses hesitate to rely on. There was a time when finding a reliable source of fund other than the banks was a difficult task. There were other lenders who would come with higher approval rates than banks but then would also impose larger interest rates. This made it difficult for smaller businesses to get funds. Also due to reputation issues and potential legal pitfalls, most banks wont process credit cards for smoke shops or anything related to the marijuana industry. This also made the scope for expansion of the business a bit difficult. Businesses had to wait till the cash flow stabilized and had to ensure that their credit score remained high.
Why do marijuana and cannabis businesses have a hard time finding funds?
Though medical marijuana has been legalized in several regions, the funding for these businesses remains a tough task. Not all investors accept this business as a good investment. Banks are still not ready to lend cash for medical cannabis startups. There are still stringent rules that banks adhere to when it comes to these businesses.
Several lenders still consider medical marijuana business a high risk one. They are skeptical about what the future would bring for the business. Though it is legal now, there is no assurance that the situation would not change in the future. And it still remains illegal in several regions.
There are marijuana businesses that might be legal by state laws. But then there might be federal laws that might question the situation. This would make the legal situation of the business a puzzle. This is not something that any investor or lender would like.
The liability the businesses have to face and the legal barriers to cross might end up incurring larger expenses.
Also in most cases, most of the cannabis businesses are not covered by bankruptcy protection. This would make the lender lose the entire amount in the worst case if the business goes bankrupt. This is because bankruptcy courts are governed by federal law and these are not really fond of marijuana cases.
The federal law might impose a lot of changes in the current rules and regulations and licensing of the marijuana businesses. This makes the future and thus the repayment of the money to the lender a big question mark.
Can pot businesses not get their bank accounts?
According to the federal law, banks are not allowed to take money from marijuana businesses. This even applies to the credit unions. This makes medical cannabis an unbanked industry. So for those who wish to start a medical marijuana business, leave alone getting funds and loans from a bank, even opening a checking account would be impossible. This would mean that banks wouldn’t accept any transactions. This would require all the customers to pay for all the transactions through cash. This would also further make the tax processing more complicated.
This is not just the case with banks. Even the popular credit card companies refuse to help open a merchant account for the marijuana businesses. There are medical cannabis businesses that have been legally licensed by the state and have good credit scores and reliable cashflows, yet find it difficult to get a bank account.
Merchant cash advance for the medical marijuana business
So, if the banks and the credit card processors give up on the medical marijuana businesses, how else can these businesses get their funds?
Equity funds and some high-interest loans are some of the ways to gather funds for these businesses. But then another easier option here would be merchant cash advances. You would be able to find venture capital and investors for medical marijuana but then to reduce the processing time and to get better approval rates, MCAs are suggested.
Not all merchant solutions offer MCAs for marijuana business. Look for those who offer high approval rates for volatile and high risk businesses like medical cannabis. These companies might also offer you merchant accounts. This would make it easier for you to handle your payments. This would mean that your customers can also pay by credit card. This would make the cash flow more stable.
These merchant cash advance providers have flexible policies that allow them to cover the vulnerabilities of the medical marijuana industries. They also understand the liabilities and thus with their experience in handling similar situations would be able to offer the desired cash advance easily.
The ease of getting a merchant cash advance
The paperwork that you would have to complete to get a merchant cash advance would be much less than that you do for a bank loan and so would be the processing time.
There would be no policy updates after the processing of the application. This would ensure that you don’t face a setback in the later stages.
For all the high NSF instances where you are running out of funds and being turned down by all the banks and yet you are in need of funds to expand the business or stock up your inventory, MCAs would come as a boon.