Alternatives to SBA: Debt Options for Cannabis Financing

When SBA 7(a) and 504 loans are off the table, operators and investors still have a workable capital stack. This playbook catalogs non-SBA cannabis financing options for real estate and operating companies, how lenders actually underwrite them, and the documents you’ll need to move from term sheet to funding. As you evaluate targets and collateral, benchmark real transactions by browsing current cannabis businesses for sale on 420 Property to calibrate pricing, timing, and structure.

Executive snapshot

SBA is not your path for plant-touching borrowers; plan for private credit (real estate and corp), sale-leasebacks, equipment loans/leases, asset-based lending (ABL), receivables/inventory finance, and (selectively) mezz/pref.
Regulatory status shapes terms. Federal illegality and bank-compliance constraints drive pricing, covenants, collateral, and KYC/AML. FinCEN guidance still governs how depository institutions bank MRBs.
Underwrite to resilience. Lenders will stress DSCR, push for hard collateral (land/buildings/equipment), and require clear zoning/CUP alignment and, for extraction, C1D1 documentation.
State and local programs can reduce cost of capital for qualified social-equity licensees (NYC, IL, CA). Layer these judiciously with private debt.

Why SBA isn’t available—and what that means for your capital plan

SBA’s current SOP confirms that businesses engaged in marijuana remain ineligible for 7(a) and 504 programs (even where state-legal). Hemp eligibility is tied to federal and state definitions and compliance. For real estate securing an SBA loan, borrowers also face restrictions on leasing to any illegal-under-federal-law tenant (e.g., a dispensary) during the life of the loan. Bottom line: don’t design your capital stack around SBA.

FinCEN’s 2014 guidance—still operational—lays out how banks and credit unions may serve marijuana-related businesses under the Bank Secrecy Act with enhanced due diligence and SAR protocols. It underpins why many mainstream lenders remain cautious and why private credit fills the gap at higher yields.

H2 — Cannabis financing alternatives you can close in today’s market

Below are the principal debt (and debt-like) options operators actually use. Use them singly or in combination to match project risk, collateral, and timeline.

1) Private real estate debt (mortgage/bridge/construction)

Use cases: Acquisitions, build-outs, power upgrades, TI, and refinance of merchant-builder bridges.

How it works: Non-bank lenders (mortgage REITs, debt funds, private lenders) advance against property value and stabilized cash flow. Construction draws fund off third-party inspections.

What lenders look for

Collateral: Fee-simple RE with clean title, environmental reports, and zoning/entitlements (CUP) that explicitly cover cannabis use.
Cash flow: Pro-forma DSCR at stabilization; pre-leasing or operating history improves terms.
Regulatory path: Local approvals calendar, building/fire sign-offs, and for extraction suites, C1D1 compliance.
Exit: Sale-leaseback take-out, refi to lower-cost private paper, or M&A exit.

Paper to prep: Appraisal, Phase I ESA, as-builts, MEP/power letters, budget/schedule, leases or LOIs, and a funds-flow.

Pros: Larger proceeds, property-level leverage, interest-only structures during build-out.
Cons: Higher rates/fees than agency/SBA, tight draws, covenants around change-of-use.

2) Sale-leaseback (SLB)

Use cases: Convert trapped equity in owned real estate to growth capital while retaining long-term control via a lease.

How it works: You sell the property to an investor and lease it back under a long-term NNN lease. Proceeds retire debt and fund growth; rent becomes an operating expense.

What investors look for

Tenant credit & unit-level EBITDA, rent coverage, and market lease comparables.
Asset quality: Location, building specs (power kVA, ceiling heights, docks), and re-tenanting potential.
Lease: NNN form, rent escalations, term (15–20 years common), and landlord protections.

Pros: 100% of property value monetized; fixed, forecastable occupancy cost; potentially lighter covenants than loans.
Cons: Permanent rent stack; poor leases can compress valuation multiples later.

Definition check: A sale-leaseback sells an owner-occupied property to an investor while the seller becomes the tenant paying rent to the new owner—converting equity to cash while maintaining operational control. NAIOP

3) Equipment financing and leases

Use cases: Lighting, dehumidification, fertigation, packaging, and (with specialized lenders) extraction systems.

Structures:

Capital leases/loans: Title transfers at end; liens perfected via UCC Article 9 filings.
True leases: Off-balance-sheet (accounting dependent); return or renew at term end.

Underwriting: Vendor invoices, install/commissioning plan, SOPs, service history (for used), and insurance certificates naming lender as loss payee.

Pros: Matches term to useful life; preserves working capital.
Cons: For specialized assets, lenders may require higher down payments, guarantees, and strong maintenance covenants.

4) Asset-based lending (ABL) on AR/Inventory

Use cases: Working capital for multi-store retail, distribution, and manufacturers.

Structure: Revolver sized to an availability formula (e.g., 70–85% of eligible AR; 30–60% of eligible inventory, dilutions and reserves apply).

Underwriting: Aging quality, customer concentration, shrink/write-offs, inventory turns, lien searches, lockboxes, and borrowing base reporting.

Pros: Scales with growth; cheaper than revenue-based advances.
Cons: Reporting burden; springing dominion; regular field exams.

5) Receivables factoring & revenue-based advances (use sparingly)

Use cases: Short-term liquidity gaps.

Structure: Sale of receivables or purchase of future revenues with daily/weekly remittances.

Pros: Fast approvals; limited covenants.
Cons: High effective cost; cash-flow drag that can stress DSCR. Reserve for taxes and inventory before taking these products.

6) Mezzanine debt and preferred equity

Use cases: Filling the gap between senior debt and common equity in acquisitions or expansions.

Structure: Contractual cash yield + PIK + warrants (mezz) or non-voting distributions with step-ups (pref).

Pros: Increases total leverage without surrendering control.
Cons: Highest cost of capital in the stack; change-of-control triggers; intercreditor complexity.

7) State and local loan programs (social-equity and development funds)

Several jurisdictions administer revolving or forgivable loan programs for licensed social-equity operators—often at below-market rates or with partial forgiveness tied to eligible uses:

New York City: Cannabis NYC Loan Fund offers flexible financing to licensed operators in partnership with NYCEDC.
Illinois: The Cannabis Social Equity Loan Program (Direct Forgivable Loans) supports dispensaries and other license types; Round 3 opens August 11, 2025.
California: GO-Biz funds local equity programs through the Cannabis Equity Grants Program for Local Jurisdictions—capital and technical assistance flow through participating cities/counties.

Practical note: Program windows, eligibility, and uses of proceeds vary—treat these as additive to private credit, not as your sole financing plan.

How lenders actually underwrite cannabis credit

1) Cash flow & coverage

Model base-case and downside DSCR at the unit level. Lenders haircut EBITDA/SDE for normalization (QoE style) and require evidence of inventory controls and shrink.

2) Collateral & perfection

Real estate: first-position mortgage; equipment: PMSI and UCC-1 filings; AR/inventory: blanket liens, borrowing base reporting, and springing dominion.

3) Regulatory risk

Map your approvals calendar (state change-of-ownership where relevant, zoning/CUP, building/fire). Extraction adds C1D1 boundary drawings, listed equipment, and ventilation documentation.

4) Landlord and insurance posture

Estoppels/consents with permitted-use language; NNN reconciliation; COIs naming lenders as loss payee/additional insured; business interruption limits that reflect ramp risk.

5) Governance & reporting

Monthly financials, 13-week cash flows, variance reports, license status attestations, and borrowing base certificates (where applicable).

Packaging your request: lender-ready materials

Two-page deal memo (executive)

Borrower profile; license types; footprint; strategic rationale; use of proceeds; collateral overview; exit paths (refi, SLB, or sale).
Financial spine: trailing and projected EBITDA, coverage metrics, working-capital needs, and sensitivity cases.

Data room index (lightweight)

Corporate: Org chart, cap table, governance docs, license letters.
Financial: Historical P&L, SDE/EBITDA bridge, QoE (if available), AR/AP agings, inventory summaries.
Real estate: Title, survey, appraisal, CUP/zoning, leases, SNDA/estoppels.
Operations: SOPs, seed-to-sale controls, inventory variance logs, security/odor plans (where required).
Capex/TI: Budget, schedule, change orders, commissioning plan.
Insurance: GL, product, property/stock, BI/EE, and any builder’s risk.
Legal: LOI, draft APA (if acquisition), indemnity/escrow mechanics.

Structuring mechanics by product

Real estate loan

Advance rate & term: Sized to the lesser of cost or value; interest-only during construction, then amortizing.
Covenants: Minimum DSCR, maximum leverage, reporting, and restrictions on additional liens.
Reserves: Taxes/insurance, TI/LC, and sometimes a licensing/approval reserve.
Close calendar: Tie funding to permits, utility releases, inspections, and (for retail) certificate of occupancy.

Sale-leaseback

Rent and escalations: Set to target coverage (EBITDA/rent); escalators 2–3% typical in general CRE—negotiate sensibly in volatile markets.
Landlord controls: Assignment, change-of-control, permitted transfers to affiliates, cure periods.
Tenant improvements: Who funds and how they amortize through rent credits.
Re-tenanting: Investor diligence on fallback uses; affects valuation and cap rate.

Equipment finance

Schedule: Match term to asset life; stagger tranches by commissioning dates.
Conditions: Proof of install, training, initial maintenance plan, and serial capture.
Insurance: Property/stock and equipment breakdown; lender listed appropriately.

ABL / AR-inventory

Borrowing base: Define eligibility (aging limits, concentrations, in-transit, consignment).
Controls: Lockbox, daily sweeps at thresholds, periodic field exams and inventory counts.

Compliance context you can’t ignore

Banking & payments: Even as policy debates continue, banks rely on FinCEN’s MRB guidance for risk programs—expect enhanced KYC/AML and ongoing monitoring. CSBS
Federal rescheduling conversation: Policy discussions about moving cannabis to Schedule III continue, but do not equate that with immediate SBA or mainstream bank access. Build your stack for today’s rules. ReutersDentons
Energy & environmental plans (some states): Certain jurisdictions require energy/odor plans at licensing; underwriters will check for credible compliance planning. Office of Cannabis Management+1

Model-building: making your ask lender-ready

1) Present maintainable cash flow.

Separate owner add-backs; show a clean EBITDA/SDE bridge; include inventory and shrink controls.

2) Build a conservative ramp.

Tie revenue timing to approvals, utility/power releases, and commissioning—not calendar dates.

3) Stress DSCR.

Show coverage under price compression and modest volume dips; if rent (post-SLB) would compress coverage, right-size the check.

4) Prove collateral quality.

For RE: power (kVA), roof, loading, and tenant improvements (TI). For extraction rooms: C1D1 certificates, panel listings, and MEP one-lines.

5) Nail funds-flow and controls.

Escrow instructions, payoff letters, lien terminations, wire verification (dual approvals and call-backs).

Term sheet red flags (and how to negotiate them)

Springing liens on IP and membership interests when the loan is ostensibly asset-based—limit scope and require cure periods.
Prepayment penalties that trap you in a high-rate environment after stabilization—seek declining step-downs or a refi window.
Full cash dominion too early in the ramp—negotiate triggers tied to borrowing-base quality and coverage.
Change-of-control traps that impede M&A—clarify permissions for internal reorganizations or sale to qualified buyers.
Overbroad MAC clauses—ask for objective metrics (license in good standing, no material audit findings, etc.).

Three sample stacks that actually close

A. Dispensary acquisition + light remodel

65% purchase-price private term loan secured by FF&E + blanket UCC; 20% seller note (subordinated); 15% cash.
State/municipal approvals mapped; landlord consent signed pre-funding.
DSCR > 1.35x by month 9 on base case.

B. Indoor cultivation retrofit (lighting/HVACD)

Equipment finance for LEDs/dehus (title-retained) + small ABL revolver for initial inventory + modest owner equity.
If you own the building, add SLB to take out capex and term the rent at coverage > 1.6x.

C. Manufacturing expansion with hydrocarbon extraction

Real estate construction loan converts to mini-perm; separate equipment lease for extraction skid; reserve for C1D1 compliance; pref equity fills last-mile capex.

How to use 420 Property alongside your financing strategy

Market sanity checks: Use live cannabis business listings to anchor pricing, rent levels, and what buyers/sellers are actually clearing.
Pipeline: Build a pipeline of assets that match your lender’s box (square footage, power, zoning) before you spend on diligence.
Speed to close: Prep the lender package in parallel with your listing outreach so you can lock term sheets when the right opportunity appears.

If SBA isn’t an option, you still have a capital stack. Outline the use of proceeds, map approvals and entitlements, then match the asset with the right product—private mortgage, sale-leaseback, equipment finance, or ABL. Package your ask like a lender, and you’ll compress time to funding. To find deal flow and comps that reflect real market clearing prices, review active cannabis businesses for sale on 420 Property and align your financing with assets you can actually close.

Disclaimer

This article is for educational purposes only and does not constitute legal, engineering, financial, or tax advice. Always consult qualified professionals and your local Authority Having Jurisdiction before making decisions.

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