Hemp farming loans are now available thanks to the 2018 Farm Bill, which lists hemp as an official agricultural commodity. In response, the USDA issued hemp farming rules that allow states and tribal territories to implement their own hemp farming rules or operate by the USDA’s proposed rules instead.
The USDA also noted that, as an agricultural commodity, hemp farmers should have access to the same farming loan programs as they do other crops. However, hemp is not like other agricultural crops. Therefore, the USDA recently issued a set of guidelines specifically for hemp farming lenders. In it are some critical hemp loan restrictions given the fine line it walks with its federally-illegal cousin, marijuana.
Explaining USDA Guidelines for Hemp Farming Loans
Though lenders should treat hemp farming loans like other farming commodities, there are special requirements that hemp farmers specifically must take. For example, only licensed hemp growers or processors are eligible for hemp farming loans. The application and all loan paperwork must display the hemp licensing information.
Furthermore, lenders must reevaluate the loan annually to ensure all hemp licensing remains valid throughout the life of the loan. Should hemp licensing expire or default, the borrower will be in non-monetary default. Non-monetary default means that the loan guarantee does not cover any losses related to hemp.
Additionally, farm loan applicants must prove their projected revenue based on their past farming practices and current market trends. They must develop business plans using data from reputable sources and make realistic assumptions for their intended commodity. This includes but is not limited to things like regional price points, higher income for organic products, the intended use for the crop (fiber, grain, or CBD), and variable quality assessments for CBD production.
Hemp Farm Loan Repayment
There are a few ways applicants can prove their ability to repay the loan. First and foremost, lenders must determine that the applicant has a regular income that is likely to continue. They will look at historical information like the applicant’s experience growing hemp or similar crops to determine if their business plan offers realistic projections.
For the applicant to use projected hemp income in their cashflow worksheet, they must sign a hemp contract to receive the loan. The agreement means the applicant formally agrees to terminate crops “for cause” only and notify the lender of any changes to their licensing or hemp plan proposal. Buyer contracts for the season’s harvest also help solidify a hemp crop’s earning potential. Note that if a licensed applicant can prove sufficient cashflow without hemp, the lender may not need a hemp contract to grant the loan.
Loan Defaults and Mandatory Crop Destruction
Unique to hemp is the risk of mandatory crop destruction due to excessive THC levels. According to the USDA’s hemp farming rules, any crop that tests above 0.3 percent THC is non-compliant and requires removal. This, of course, is concerning to hemp farmers who may inadvertently grow hemp with spiked THC levels, and concerning to law enforcement who are concerned farmers may purposely grow “marijuana” under the guise of hemp.
Fortunately, the mandatory destruction of hemp crops does not necessarily mean loss of loan protection. The licensing authority may determine that the borrower was not negligent in the production of hot hemp crops. If such is the case, the lender may list the lost as though it were diseased or damaged by insects. The FSA will not pay for hemp crop destruction or offer advances to cover the cost of the loss claim. However, applicants may still find relief under basic farming insurance plans if they were deemed non-negligent.
Hemp loans that go into default are also a tricky subject. Because hemp farming requires specific licensing, loans that go into default may be difficult to liquidate. Without proper hemp licensing, no lender, agency, or legal authority can obtain the commodity (whether growing or harvested) to recoup the loss. Lenders are, therefore, strongly urged to consider default terms when granting hemp farming loans.
Finding a Hemp Farming Lender
Those who wish to apply for a hemp farming loan should carefully search for hemp-friendly lenders. The USDA notes that many banks still avoid hemp lending. It is, therefore, up to the borrower to ensure their loan providers can accommodate hemp farming loans.