Peer-To-Peer Trust Deeds is originating commercial private money loans for use by cannabis related businesses needing to purchase buildings to house medical marijuana operations in California, Oregon, and Washington.
The problem that many entrepreneurs in the medical marijuana industry find is a lack of financing for their buildings since federally chartered banks and credit unions cannot offer financing because presently marijuana is not legal at the federal level.
Therefore, marijuana business owners cannot apply at their local bank for a loan and have to turn to other forms of financing like private money (often referred to as hard money) lending for their buildings.
We recently closed a commercial private money loan in Portland, Oregon for a medical marijuana entrepreneur who was buying and converting a former restaurant into a wholesale medical marijuana growing facility.
Our client had done an excellent job sourcing the building at a very favorable purchase price from the seller who was exiting bankruptcy. The building had been unoccupied for several years and needed another $50,000 in renovations plus $50-75K in equipment and $150-250K to come into compliance with city/county/state agencies to start the wholesale growing business along with making edible products.
Private Money Loans for Cannabis/Marijuana Related Businesses
Our client weighed two different offers from private money lenders. The first option was from a Portland-based hard money lender offering a $575,000 loan for 24-months at 11.00% interest-only. The loan amount of $575,000 (75% Loan-To-Value) was pretty attractive to the client, but the 24-month balloon payment could pose a problem down the road if the new business hit unforeseen obstacles like delays in licensing, permitting, mold on the marijuana plants, or all the other things that happen to new businesses that creates a cash flow crunch at the wrong time.
The second option, and the one the client went with, ours, was from a California private money fund with experience lending against the real estate tied to medical marijuana businesses. This proposal came in at an initial loan amount of $465,000 (60% LTV) with a 5-year fixed rate of 9.99%, amortized over and due in 15 years.
The lender wrote the Note for $600,000, agreeing to release additional $135,000 to the borrower if they wanted / needed the additional funds as soon as the building renovations were completed, the medical marijuana permits were in place, and the new business was off the ground in 6-12 months.
Since this was a brand new business and new territory for our client, going with the 15-year loan made the most sense over the 24-month Portland-based option. It gave the business time to ride out the growing pains (no pun intended) of having a new wholesale medical marijuana business.
From start to finish, the private money loan for the building took about 21 days. Our client had highly organized financial records and already had the building appraised. For those unfamiliar with appraisal turn times, commercial appraisals usually take 3-4 weeks to complete. In this instance, the lender from California sent the completed appraisal to a Portland-based commercial appraiser they had worked with numerous times over the years for an appraisal review, which agreed with the valuation. Most commercial loans like this will take about four weeks to close.
Overall, this loan worked out really well for the borrower and for the lender. The borrower had great liquidity, was an experienced entrepreneur, and purchased the property several hundred thousand dollars below market value. The lender made an excellent loan at a 9.99% yield with 40-50% protective equity off present value (not repaired value).
Once repaired, the borrower could elect to withdraw the additional $135,000 if they needed the funds for the business or just wanted to replenish their funds already invested in the building. Both parties benefited from the transaction and we expect this loan will perform many years into the future.
For medical marijuana real estate financing inquiries, please email email@example.com
Or you can call Brett Everett (CA) or Ted Spradlin (OR & WA).