CBD Financing: How to Find a Hemp-Friendly Bank

Despite the absolute meteoric rise of the cannabis industry, finding CBD financing and a hemp-friendly bank is still a struggle. Even the hemp industry – which isn’t classified as a Schedule I illegal substance – faces considerable difficulties finding hemp-friendly banks.

It’s a strange situation for many growers. The federal government legalized industrial hemp plants under the 2018 Farm Bill. The result has been an explosion in CBD-related products. Indeed, CBD sales are expected to go all the way to $24 billion by 2023. 

However, CBD financing is often hard to come by – with the majority of banks and other financial institutions shunning this lucrative industry. In fact, it can be harder to access CBD financing than cannabis banking due to a significant lack of established guidelines.

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CBD Financing: How to Find a Hemp-Friendly Bank

Below we’ll discuss how businesses can access CBD financing via hemp-friendly banks. We’ll also explain why it’s all so difficult and how that could be about to change.

What are hemp-friendly banks?

After hemp production was legalized following the 2018 Farm Bill, CBD industries rapidly expanded, leading to the emergence of CBD financing. Banks and other financial institutions were reluctant at first, however. Because America lacked the legal and regulatory framework to allow for rapid expansion of the hemp industry, many banks treated the enterprise as high risk. 

Even businesses that do get loans see exorbitant interest rates. That’s gradually starting to change. However, lenders are often still hesitant to provide financing to CBD startups, regardless of the industry’s success.

Types of CBD financing and loans

Not all loans are created equally. Just as businesses have different needs, so too are there different CBD loan types. Here’s a breakdown of the most common:

1. Real estate. Perhaps the most capital-intensive part of setting up or expanding any CBD business. Hemp friendly banks will provide real-estate loans or mortgages to help purchase, refinance or build up your commercial property. 
2. Equipment. The biggest barrier to business growth is often inadequate facilities. The demand is there, but supply is not. To finance CBD extraction equipment and more, you can apply specifically for a CBD loan for equipment and machinery. You can even receive financing for lab equipment, like mass spectrometers.
3. Large projects. Such loans are typically used for a combination of real estate and equipment purchases. These projects may involve opening a new lab, moving to new premises, and more. Often these loans can top $10 million or more. They’re also an attractive loan type for startups in serious need of capital – other physical assets can serve as collateral.
4. Working capital. No business in the world survives without a good supply of working capital. Funds are needed for lease payments, salaries, inventory, marketing, and more. Such loans are often unsecured, meaning they’re not underpinned by real estate and other assets. They’re not as common, therefore, and can be considerably more expensive than other types of loans.

While these are the most common types of loans relating to what’s being purchased, CBD financing does have a couple of different funding models:

• Bridge loans are also known as ‘gap financing’, ’swing loans’, or ‘interim financing’. They’re designed to provide a business with a short-term capital injection while longer-term solutions can be sought. Often the money is used for rent, inventory, working capital, and other immediate business expenses. The downside is their high-interest rates.
• Merchant cash advances aren’t really loans. Rather, they’re based on upcoming credit card and business debit transactions. Merchant cash advances are another short-term supply of working capital; they won’t finance major business changes.
• Private loans are the obvious alternative to big banks. Each private lender has its own applicant requirements needed to qualify for a loan. However, it can provide an alternative means of securing a large capital injection to expand and grow your business. 

How to find a hemp-friendly bank

You should never rule out approaching your friendly neighborhood bank. But such finances cannot form the backbone of your business plan. It’s more than likely you’ll be rejected.

So, who do you turn to?

Safe Harbor is one of the few financial institutions offering cannabis and hemp industry loans. Clients must have been with Safe Harbor for at least six months to qualify. The primary purposes of the loan are retail-orientated. For example, to purchase or refinance commercial property.

For hemp growers in dire need of funding, it’s an absolute lifeline.

Other financial institutions also exist that handle CBD financing in some ways – though many don’t advertise this fact openly. PenFed Credit Union serves Virginia and North Carolina, providing a fantastic refinancing program for anyone, including hemp-related businesses. 

In California, meanwhile, Patelco Credit Union has served the Bay Area for the last 80 years. As a not-for-profit, member-owned bank, they’re by far one of the best options in the state. 

The future of hemp-friendly banking

Currently, many big banks are merely dipping their toes in the water. Chase Bank, for example, allows CBD-related bank accounts but won’t provide payment processing services. Part of the problem remains the legal discrepancy.

Even on this front, there are positive signs of change. Despite being beset by delays, the SAFE Banking Act promises to stop federal banking regulators from penalizing financial institutions associated with cannabis-related businesses. Given the blurred line between the hemp and cannabis industry, such penalization often prevents access to CBD financing.

If the law changes, hemp-friendly banking will likely become much more common. Banks will offer loans safe in the knowledge they won’t be prosecuted – even if such risks are tiny at present.

Still, with so many CBD sellers and businesses starting and growing, it’s likely banks will be somewhat hesitant about lending going forwards. It’s hard to predict the winners when the market is being swamped. You can preempt their concerns by providing all relevant documentation and staying honest and transparent about your business.