Cannabis Equipment Leasing and Leasebacks
Most cannabis businesses use a cannabis equipment lease to finance new equipment or use a sale-leaseback to obtain a loan against already owned equipment. Cannabis equipment lease financing is far different than other industries, but it is a frequently executed credit facility. HEF has underwritten, closed, and reviewed hundreds of equipment acquisition scenarios in the cannabis industry. Every day, HEF consultants participate in both the actual underwriting of cannabis equipment leases and review credit scenarios with prospective borrowers for equipment leases to finance extraction equipment, lab testing equipment, and cultivation operations in the cannabis hemp and marijuana sectors. With this deep level of experience, HEF can provide accurate and realistic ranges of borrowing power, ranges of rate and term, and a realistic time frame to execute and funding a cannabis equipment lease.
HEF underwrites a significant volume of equipment leases, and borrowers can therefore expect HEF finance consultants to have their finger on the pulse of changing credit criteria for cannabis equipment leasing. For example, in recent years, the hemp market volatility caused a shake up in the cannabis equipment leasing market due to high default rate from operators who believed “if I build it, they will buy”. When the price of hemp biomass plummeted from a typical price of $40 per pound to $5 per pound, operators and lenders alike felt the impact of many business failures in that sector. Cannabis leasing companies were already hard to find before these events, but as a result of the rapid market decline in 2018 and 2019, many lenders and equipment leasing firms exited the cannabis industry entirely. Although the dust has cleared from this challenging period, there are still only a few cannabis equipment leasing funds that execute a significant number of leases on a regular basis.
Can you get a cannabis equipment lease as a startup?
The short answer is yes, but you’ll need to have some capital for a down payment, costs to close the lease (points and fees), costs of an appraisal if you are doing a leaseback on used equipment, and to show the leasing company you will have sufficient liquidity to operate the business (in most cases). The LTV for startup leasing is 65% across the board for established cannabis leasing companies, and the interest rate is substantially higher than most industries. Startups may use another business or asset they own to change bring down the rate if that business is established and profitable. For established cannabis companies, the LTV can be higher and the rate lower, however, the rates are still going to be higher than most industries. Call and HEF consultant today to discuss the current rate and term for your equipment leasing request.
Cannabis Equipment Leasebacks
Leasebacks are a common way to obtain liquidity quickly for cannabis businesses at better rates than the typical revenue-based credit lines or MCA loans. Borrowers can expect to get a loan amount between 30% and 50% of the original invoice value of the equipment depending on the age, type, and condition of the equipment. Almost always an appraisal will be needed to execute a leaseback successfully. This is an out of pocket cost of typically $7500. Some lenders will also require fees for legal and due diligence prior to funding, but some don’t. Engagement fees or application fees to begin underwriting a cannabis equipment lease are also commonly required. Because of the need for an appraisal, a leaseback may require 4-5 weeks to execute, whereas a new equipment lease may only require 2-3 weeks.
Whether you are seeking a cannabis lease option for new equipment or looking to borrow against your existing equipment using a leaseback, HEF can help you quickly assess the feasibility and cost of either option. Contact us today to review available paths to equipment funding.
How to find a loan for your cannabis business?
The underserved cannabis industry, as it pertains to financial services, is a minefield to be navigated only by the intrepid and savvy. The dearth of lending options in the cannabis sector, and banking options, make it uniquely difficult to obtain debt financing. And there is no shortage of pitfalls and misleading brokers.+ CONTINUE READING
Fact or Fiction: Cannabis Equipment Leases at 5% APR
Recently, in our survey of the online content the cannabis lending industry, we found examples of claims about cannabis equipment leasing rates that made us cringe, and to be honest, chuckle. One example, was a cannabis equipment leasing web page that touted the following highlights of their cannabis equipment lease program:+ CONTINUE READING
Can I get a loan for my Cannabis Startup business
At HEF Finance, we get this question usually a few times a week. And, we always say that we have executed many loans for startups and pre-revenue companies for public and private companies in both the U.S. and Canada. That said, like all cannabis loans, the business needs certain ingredients to execute a loan successfully.+ CONTINUE READING
Get an expert cannabis finance consultation with an
HEF Finance expert Today.