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You may think that due diligence is something reserved for business or real estate purchases. But due diligence is also a must for lenders in cannabis loan transactions. I recently wrote a post about what borrowers can look forward to in cannabis loan transaction. Today I want to do a deeper dive into due diligence – something that lenders will need to do well, and that borrowers will need to take seriously. Below, I go through some of the key things that cannabis lenders will look for in due diligence.
Who is the borrower?
One of the first things a lender needs to know is who and what they are dealing with. This may seem painfully obvious, but we’ve seen lenders rush headfirst into transactions with less than full awareness of the circumstances. Here are some things smart lenders look for:
Business types
Lending money to a retailer in a high-traffic area is probably a lot safer than lending to a distributor out in the sticks. That retailer will have much higher revenues, which means a higher chance of being paid.
Org charts
Sometimes a borrower will be one entity
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