For many of our customers, bridge loans and revolving lines of credit are great options, since it provides the necessary capital with a typically shorter payback period.
A bridge loan is provided for a borrower that needs to achieve a certain outcome and requires a short-term loan to get them “over the bridge” that separates them from their desired outcome. For marijuana businesses, a bridge loan is typically used to take a piece of real estate and change it to fit their needs or improve it, thus increasing the value of the asset. They can carry higher risk for a lender than a traditional working capital loan, as the ability to repay may be diminished due to reduced cash flow. This is similar to why construction loans from banks carry a higher interest rate than permanent loans: the inherent risk of the project not getting completed, cost overruns and delays.
Similar to cash flow-based funding, a revolving credit line exists when a customer pays a commitment fee and is then allowed to use the funds as they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer’s current cash flow needs. In cannabis-based businesses, these lines are used to fund anything necessary for day-to-day operations, expansion projects and to hold-over reserves until harvest.
At DAF, we have helped connect many businesses with funding source to perform tenant improvements or move into a new facility when their reduced cash flow would not support their operations between harvests.