HEF Finance

Cannabis Direct Lenders: when does it pay off to use a single source for a cannabis loan?

No one wants a lot of brokers between their business and their credit facilities. To be fair, some brokers do a good job of qualifying and packaging a credit request for a lender, or lenders who fit the criteria of the borrower well. HEF Finance currently has a network of 139 brokers who essentially “white label” HEF’s underwriting and acquisition services. All that said, we get the question frequently: “are you direct lenders?”

The short answer is, “yes” by the definition of our industry, but our answer usually is, “sometimes, but most of the time we’re not direct lenders, we are correspondent lenders who underwrite to the criteria of our affiliate funds.” In most cases we are correspondent lenders and there is no “middleman” between us and the funds we underwrite to, so we are considered by some definition to be direct lenders even in those cases. That said, our definition of a direct lender is a firm that has the funds on campus, and if a borrower meets our criteria after some review, we can authorize the release of funds to that borrower. And, in some cases, we do act as direct lenders, but more often than not, we are correspondents to a fund, or contribute funds to a syndicated loan. HEF, having worked with various funds to develop underwriting criteria over the years, has partnered with funds with the intention of not having to deploy internal funds most of the time so that we can provide flexibility to our borrower clients by broadening our lending criteria with other partners. We are not captive to a single fund, nor do we want to be.

By working with a firm that has relationships several funds, with slightly different criteria, rate, and term, a borrower can get the best of all worlds. A correspondent lender like HEF is not a “shotgun” broker who just forwards a Dropbox folder to a slew of lenders in the hopes someone will take notice. First, working with a credible correspondent lender like HEF, or a professional experienced broker in the cannabis finance world, will mean the file won’t just die an early death because it wasn’t packaged to the specifications the fund requires, or presented from a source that lacks a successful track record of closing loans. Second, a firm that works with the same group of funds on a regular basis can benefit from the fact that they deliver a volume of loans to those funding sources. Those funds pick up the phone from a familiar firm that generates credible, quality, well vetted files, and presents them on a regular basis. Fund managers value their time which is why they don’t speak with brokers who try to bring them every file they receive, but they give underwriting partners who bring them a volume of well-vetted files, a degree of preferential treatment. To the borrower that has engaged such a firm, that’s going to mean they will have their “best foot forward” in the form of the right presentation, the highest chance of achieving a successful result, and the speed of underwriting that would be the equivalent to “top of the stack treatment”.

Working with a single, direct lender, might sound nice, but the reality is that having one option for a loan is rarely a good thing. What if you spend months in underwriting, and the lender backs out of the deal? What if there are more preferable terms with another fund? What if you could close your loan much faster with another fund? Are you intimately familiar with how this fund looks at a credit package? It might be a better idea to hire a firm that works with multiple funds in the cannabis industry every day that knows how to navigate your unique credit profile. At first glance, seeking out a direct lender and trying to go straight to the source might sound like a good idea, but it may not be.