As the world continues to open up to the hemp industry, hemp farmers are getting happier because now they can easily acquire loans for their businesses. Large-scale hemp cultivation is a capital intensive venture. As such, the machines and equipment needed to set up a hemp facility, as well as the initial labor requirements, are costly. More often than not, hemp businesses find themselves needing financial support in the form of loans.
Before the Agricultural Act of 2018 , traditional lending institutions were not advancing loans to hemp businesses. This is because hemp was considered illegal under federal law. Consequently, banks and other lending institutions were not allowed to deal with hemp businesses. The Agricultural Act reclassified hemp as an agricultural commodity, meaning that it was no longer considered a scheduled substance. With this, hemp farmers can now gain access to loans quite easily.
This did not happen right away when the Agricultural Act was passed. A year later, financial institutions were still skeptical about lending to hemp-oriented businesses. However, this changed when federal agencies announced that banks will no longer have to file reports for suspicious activity when working with hemp businesses.
Farm Service Agency (FSA) Farm Loans
Starting in 2020, hemp farmers will have access to FSA farm loans that cover different aspects of the hemp cultivation process. Eligible applicants will need to comply with state and tribal regulations for hemp cultivation. All details regarding the disbursement of FSA farm loans have yet to be released, but you can check the USDA website for updates on this information.
Institutional Loans For Hemp Businesses
Private financial institutions such as banks and other credit facilities can now offer loans to hemp businesses. They can be offered in the form of:
- Term loans: Term loans are given in a lump sum amount that is payable after a specific duration of time. They are usually used to fund capital investments, such as machinery purchases
- Lines of credit: This is credit that is offered on an ongoing basis. It is used to fund ongoing expenses such as labor costs, and it is usually paid in installments
- Real estate loans: This is a loan that is advanced for the purchase of land or buildings. Because the sums involved tend to be high, these loans are usually paid over the course of 20-30 years
- Merchant cash advances: This is also referred to as a working capital loan, and it is based on the anticipation of future sales. A fixed amount of money is given, it pays business expenses, and it is repaid from future sales.
- Bridge Loans: A bridge loan is a small loan which facilitates your operations as you wait for the disbursement of a bigger loan
What Expenses Can Be Covered With a Hemp Loan?
Before applying for a hemp loan, you need to first assess the needs of your business, and determine your ability to finance the loan. You may take out a hemp loan to cover the following business expenses:
- Working capital
- Inventory and raw materials
- Real estate
Most financial institutions will demand bank statements and credit reports before they can qualify you for a hemp loan.
Where Can Hemp Business Get Access To Loans?
Cannabis Credit Lines
Cannabis Credit Lines offers loans to hemp and cannabis startups that may be unable to secure loans from traditional financial institutions. Unlike traditional institutions, they only consider personal credit scores when assessing loan qualifications. They do not demand collateral or asset verification, which makes it easier for hemp businesses to access funding.
Industrial Hemp Farms
Industrial Hemp Farms (IHF) has partnered with a financial institution to offer affordable loans to hemp businesses. Amounts not exceeding $35,000 receive same day approval. Their loans cover wholesale hemp biomass, hemp seeds, hemp clones, and other hemp products. They offer financing to a maximum limit of $500,000.