The Pros And Cons Of Real Estate Loans For The Cannabis Industry

The Pros And Cons Of Real Estate Loans For The Cannabis Industry

usiness can cost quite a bit of money. Unless you already have several million dollars in cash, you will probably need a real estate loan for your cannabis business. Learn about the pros and cons of cannabis property loans so you can make informed decisions.

Con: You Cannot Rely on Banks and Other Traditional Lenders

Banks and credit unions must follow federal laws, making it dangerous for them to work with businesses in the cannabis industry. Even when you operate in a state with legal cannabis, few banks will want to loan your business money.

The apprehension of traditional lenders will probably remain as long as the federal government lists cannabis as a Schedule I drug. Banks did not start lending to the cannabis industry during the Obama Administration even though the president said that the Department of Justice would not focus on legal businesses. That was a smart decision for the banks. As soon as Jeff Sessions became the Attorney General, that rule changed.

Unfortunately, that means you cannot rely on a bank or credit union to give your cannabis business real estate loans. Until the law changes, they will not take the risk.

Pro: Private Real Estate Loans Can Help Fund Cannabis Property Purchases

Private real estate lenders don’t need to worry as much about following federal laws. Since they do not act as banks, they have fewer restrictions.

Plenty of reputable lenders have filled the gap left by banks. Now, you can apply for and receive money that makes it possible for your cannabis business to grow. It’s no different than any other type of business borrowing from a private lender.

Con: Higher Interest Rates, so Compare Offers

The amount you pay for 420 real estate can vary significantly depending on the type of property you want to purchase and where the property is located. A fully-equipped recreational retail store for sale in Michigan might cost about $2 million, while a medical marijuana dispensary in Oklahoma might cost half a million.

Regardless, most businesses do not have immediate access to that much money. A cannabis real estate loan makes it possible for you to purchase property. You will, however, have to pay interest on the loan, which increases the overall cost of the property.

Slight differences in interest rates and fees can significantly affect how much money you spend repaying your real estate loan.

Let’s say you borrow $1 million with a loan that charges 15 percent over the next five years. You can expect to pay your lender about $23,789 per month. By the time you repay the enter real estate loan, you will have spent about $1.43 million. That’s $430,000 in interest.

Even a 1% change makes a big difference in the amount of interest you repay. Consider what happens when you borrow $1 million and repay the money over five years with a 14 percent interest rate. Your monthly payment falls to about $23,268. You save about $520 per month just by lowering your interest rate by one percent. When you finish repaying the loan, you will have spent about $1.396 million. With just one percentage point, you’ve lowered your overall repayment by more than $30,0000.

Take time to compare all of your offers so you can get a real estate loan that helps you purchase property without spending more money than you can afford.

Pro: You Can Get Competitive Loan Offers From Private Lenders

The good news is that most private real estate lenders know they face a lot of competition from each other. Assuming that you have an excellent credit score and can commit to a 30 percent down payment on the property, you will attract attention from several lenders.

At best, you might qualify for a loan that charges 7 percent. That would make it much easier for you to start a successful business that generates enough revenue for you to repay your loan and still keep profits that help your brand grow.

If you don’t have an excellent credit rating or a sizable down payment, talk to private lenders to see how you can make your application more appealing. You might learn that waiting a few months will give you time to improve your credit rating or save more money for a down payment.

Con: You Will Likely Need a Substantial Down Payment for Your Real Estate Loan

Practically all lenders will require a down payment before they let you borrow money. The down payment helps ensure that you take the arrangement seriously. When you invest $30,000 in a $1 million property, the lender sees that you’re willing to accept some risk and lower their risk.

Keep in mind that lenders will often lower their interest rates when you contribute more to the down payment. With $30,000 on a $1 million property, the lender might charge 13 percent. With $100,000, you could find yourself paying 10 percent or less, depending on factors such as your credit history and the property’s value.

Pro: Many Private Lenders Will Work With You to Meet Your Needs and Limitations

Are you slightly shy of meeting your lender’s requirements? That doesn’t mean you shouldn’t apply for a loan. Some private lenders are willing to overlook minor imperfections and keep the big picture in mind. Your credit score, for instance, might not reflect your actual risk or trustworthiness.

When in doubt, reach out to private lenders to talk about ways you can qualify for cannabis real estate loans. They might give you advice that makes the process easier and faster.

Start Your Cannabis Business With Help From Lender420!

No matter what type of cannabis business you want to start, you will save money in the long run by purchasing real estate. Apply for a real estate loan through Lender420 to see whether you qualify for the amount of money you need.

October 14, 2022Comments Off

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