The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) has recently released new loan guidance for lenders servicing hemp producers.
The seven-page document provides guidance on servicing direct and guaranteed loans for industrial hemp. It also includes parameters producers need to follow to be eligible for the FSA loans, which were opened to hemp farmers with the release of the interim final rule in 2019.
“While it’s understood that this new commodity will likely produce some servicing challenges because of state and federal regulations, it should be treated as closely as possible to any other agricultural commodity and serviced in the same manner,” states the memo.
Highlights of the memo include:
All producers must be licensed under a state or tribal plan approved by the USDA, or the producer must be licensed directly by the USDA. The FSA must have a copy of the producer’s current license before approving loans.
Producers must have a contract with all required provisions for projected income/cash flow purposes, as a lender must be able to determine that the applicant has the resources for repayment.
Lenders should insure planned hemp acreage matches acreage reports.
The FSA will not pay for crop disposal nor cover a lender’s advance to pay for it if the hemp surpasses the 0.3% tetrahydrocannabinol (THC) limit.
Hemp producer licenses cannot be transferred, which has implications for lending as well.
Business plans must be based on data from reputable sources, as well as realistic assumptions and historical information.
Hemp will be considered like any other commodity as long as it was produced under a license.
The memo also notes that some banks don’t accept financial transactions from hemp operations at this time, so applicants should make sure a bank is available to them.
Read the full memo on the FSA’s website.