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Get a farm loan: Agriculture financing and beginning farmer loans
Find farm loans and government programs to help you grow in Canada.
If you’re in agriculture, you probably thought you’d spend most of your time farming, not trying to find ways to fund your project. For new farmers with no background in finance, it’s important not to let the never-ending list of expenses discourage you.
It’s not as difficult as it might seem. You have private and public options to help you finance your farm and keep you doing what you love.
What's in this guide?
- Compare business loans from online lenders
- What types of loans are available to farmers?
- Can I get a loan for my agribusiness?
- Government-funded farm financing for beginners
- How do I compare my loan options?
- What do I need to apply?
- Your farm financing preparation checklist
- How can I finance my farm without taking out a loan?
- Fast facts about Canada's agricultural industry
- I got a farm loan. What can I expect?
- Bottom line
- Frequently asked questions
Compare business loans from online lenders
Some lenders classify farming as a high-risk industry. Before applying for a loan, you may want to contact a lender to double check your farming business is eligible.
Representative example: Elijah buys a farm
Elijah, who lives in Ontario, has been actively managing a neighbouring farm for years. The owner is ready to retire, but his children have all chosen different career paths and aren’t interested in taking over the family business. After speaking with Elijah, the owner agrees to sell him the entire farm – including all of its property and assets – for $2.2 million. After cashing in on some personal savings, securing several agricultural grants and getting funding from outside investors, Elijah still finds himself $250,000.00 short of the money he needs.
He applies for a loan and is approved for financing with competitive terms, thanks to his solid credit history. Both Elijah and the former farm owner forfeit the collection and remittance of sales tax on the transaction by signing Form GST44, which can be done because both parties are GST/HST registrants. Had they not signed this form, Elijah would’ve had to pay 13% HST ($286,000.00) on the sale price. In that case, he could’ve treated the HST as tax deductible on his next business tax return.
|Cost of purchasing a farm||$2,200,000.00|
|Loan type||Business loan (term loan)|
|Interest rate (APR)||7.99%|
|Loan term||7 years|
|Additional fees||Origination fee of 3.00% ($7,500.00)|
Application fee of $0.00 (waived by lender)
|Total loan cost||$327,206.04|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
What types of loans are available to farmers?
New farmers face a challenge: lenders aren’t crazy about providing large loans to businesses that haven’t been around very long. But it doesn’t mean you’re out of luck. There are a few lending options available for those just starting out.
- Direct operating loans. New farmers need to buy equipment, livestock, fuel and other items to run a farm. Though small, these loans can help you purchase what you need while building trust with lenders, which could lead to larger real estate loans down the line.
- FCC loans and other loans for young and beginning farmers. Farm Credit Canada (FCC) offers customized financing through the Starter Loan and Young Farmer Loan programs. Starter Loans are available for 18-25 year olds with special interest rates and zero loan processing fees. Farmers under 40 years old can use a Young Farmer Loan to purchase up to $1,000,000 in agricultural assets. Terms for Young Farmer Loans are very competitive and include either a fixed or variable (prime + 0.5%) interest rate and zero loan processing fees. (This information is accurate as of August 2019).
- Small loans from private lenders. Starting a rooftop apiary? A hydroponic vegetable garden behind your restaurant? Or do you simply need a little extra funding to cover an unexpected expense or shortfall? Getting a small loan through a private lender could be a way to help you cover niche expenses.
- CALA loans (and other forms of financial assistance from the Government of Canada). These government-guaranteed loans are good for helping beginner and small farmers who need extra cash to buy equipment, construct or maintain buildings or cover occasional shortfalls.
- Venture capital and angel investors. Wealthy groups and individuals are willing to give promising businesses money in the hopes of reaping capital gains down the line. If you’re just starting out, consider this option.
Can I get a loan for my agribusiness?
Because agribusiness refers to any business that earns most or all of its revenue from agriculture, many of your farm financing options will be available for an agribusiness operation.
You can finance just about anything you need, from purchasing new breeding stock to buying farm machinery to expanding your farm’s staff. That’s because agribusiness is a huge umbrella term that encompasses every step of agricultural production. Banks, credit unions and other lenders all administer in-house loan programs as well as government loan programs – such as CALA loans – to help with your agribusiness.
Like any farm or business loan, you’ll need to supply your agribusiness’s financial statements and build a strong application. Target lenders that have previously worked specifically with farmers in your niche. You should also know exactly what you plan on using your loan for will as this will help you find approval.
How do I know if I’m a young, beginner or a small farmer?
Different lenders use these terms to refer to slightly different eligibility, so you’ll want to confirm them with specific lenders.
However, you’ll find many lenders that agree on these rough definitions:
- A young farmer is between 18 and 39 years old.
- A beginning farmer has less than 6 years of agricultural experience.
- A small farmer operates on $250,000 or less of yearly revenue and/or may farm roughly 2 hectares of land (0.02 sq km) or less.
Government-funded farm financing for beginners
Unlike many small business owners, farmers are not eligible for loans under the Canada Small Business Financing Program (CSBFP). But not to worry – there are still many financing options for startup agriculturalists to explore.
Agriculture and Agri-Food Canada is one of the first places a new farmer should turn to for financing. The Canadian government actively supports farmers through lending programs and initiatives aimed at increasing the stability and viability of farming – especially for upcoming generations. Below are just some of the programs offered:
Examples of Agriculture and Agri-Food Canada (AAFC) financing options
This information is accurate as of August 2019.
- CALA loan program. You may be able to get a government-backed loan through the Canadian Agricultural Loans Act program. Under this program, eligible farmers may receive up to $500,000 for any single farm operation, however, with the Minister’s approval, you could receive up to $3 million. Funds may be put towards the cost of land, building construction or improvement, loan consolidation or refinancing and other purposes. The federal government guarantees 95% of the loan in the event of default, so a CALA loan may be easier to get than private sector financing.
- Advance Payments Program. Farmers can receive cash advances of up to $400,000 per year based on the value of their agricultural products, and the government will cover interest payments on the first $100,000. For most commodities, farmers have up to 18 months to repay the loan, however, the repayment term extends to 24 months to for cattle and bison.
- Price Pooling Program. Designed to protect food producers from dramatic price drops in the market for their products, this program guarantees the prices of particular foods based on similar grades, varieties and types. Any cooperative, partnership, association, marketing board or similar group of food producers may submit a detailed application (must be resubmitted annually) to fix the price of a particular agricultural product as per an agreement between the members of that group.
- AgriInsurance, AgriStability and AgriInvest. These programs help protect farmers against a variety of losses that are out of their control. AgriInsurance covers losses due to natural disasters to their fields such as floods, drought, hail and disease. AgriStability offers funding to cover shortfalls due to low prices, rising input costs or production losses. And AgriInvest helps farmers invest their money to cover future declines in their income. These investments are matched by federal, provincial and territorial governments (investment and matching limits apply).
- Canada Brand. Members of this program can use a number of tools free of charge for designing marketing and informational materials for their agricultural business. Benefits include access to professional Canadian photography, market research reports and specialized graphics in a variety of languages and formats.
The Canadian Agricultural Partnership is a 5-year, multi-billion dollar partnership launched in 2018 to bring together the federal, provincial and territorial governments to provide support for Canada’s agricultural sector. You may be eligible for government funding from your provincial or territorial government – click here to see a list of partners.
Targeted/specialty farm loans
Some loans are aimed at making farming a more viable career option for populations that experience barriers to entering the industry. Besides the FCC’s Starter Loan and Young Farmer Loan programs, such financing options include:
- Indigenous Agriculture and Food Systems Initiative. Through the AAFC, this program provides economic opportunities to Canadian Indigenous people who want to launch agriculture and food systems projects.
- AgriDiversity Program. Again offered by the AAFC, this program gives non-repayable contributions to underrepresented groups such as women, youth, people with disabilities and Indigenous people in order to help them enter the agricultural industry.
How do I compare my loan options?
Choosing the right type of financing is a first steps to getting funding for your new farming venture. When comparing your options, weigh the importance of these elements against your needs:
- Loan amount. Think about how much you want to borrow to narrow your options. To avoid falling into debt, borrow only what you need.
- Loan term. If you want to pay off your loan over a number of years, consider a fixed-term loan. If you think you can pay it back in a few months, short-term options could be a better choice. And a line of credit might give you a continuous flow of funds.
- Eligibility. Loans come with eligibility criteria including your age, years of farming experience and citizenship, among other factors.
- Interest rate. Interest rates vary depending on how much you want to borrow and how long you need to pay it back. Government and other options aimed at beginning farmers tend to come with lower interest rates.
- Fees and costs. Application and origination fees can add up when you’re applying for a loan. Also ask about prepayment penalties that could discourage you from paying off your loan ahead of time.
- Loan type. Government-funded options like CALA and FCC loans could offer advantages over venture capital investments and traditional loans depending on your needs.
What do I need to apply?
How much information and documentation you’ll need to submit will differ by lender. For instance, short-term lenders typically require less documentation than paperwork-heavy Small Business Association loans.
In general, you’ll need to provide at least:
- Your personal contact information.
- Your date of birth and Social Insurance Number (SIN).
- Your personal credit score.
- Proof of residency.
- A thorough business plan.
- Business bank statements and/or Notices of Assessments for the past 3 years.
- A list of your other creditors.
Your farm financing preparation checklist
- Educate yourself. Take classes, go to conferences and participate in workshops for beginner farmers. Not only will you know more about how to run your farm, but you’ll also have an easier time getting loans in the future.
- Diversify. Chances are that you won’t be able to fund your new farm through one source. You’re more likely to succeed if you apply for a few types of loans and grants.
- Keep an eye on the future. Look out for grants and financing programs you may be eligible for later. Applications require planning and can take a long time to process. Knowing what lies ahead can help you stay on top of your finances.
- Have a Plan B. Things can go wrong on farms — insects, droughts or floods can wipe out yields. You could apply for an emergency loan, but having an emergency fund or crop insurance can help you weather the low points.
- Avoid applying for loans in the spring. Spring is the busiest time for agriculture lenders.
How can I finance my farm without taking out a loan?
You have options beyond borrowing from a lender. A few include:
- Grants. While your choices aren’t many, you could find a grant through your city, country or region.
- Private contracts. Some property owners are willing to enter into private contracts with new farmers to sell land and other assets. Building a relationship with farmers interested in passing on their land is one way to gradually gain ownership of a new farm without having to involve banks or the government.
- Make your farm a CSA. Through Community Supported Agriculture (CSA), consumers pay a set fee at the start of your growing season to receive a specified amount of your harvest throughout a season or year. Fees give you income for the season and help mitigate risks like crop failure.
- Crowdfunding. Sites like Kickstarter, Indiegogo and GoFundMe are low-risk ways to raise money for a project. Even if you don’t raise as much as you need, you can practice delivering your business pitch and get an idea of who’s interested in your products.
4 tips for crowdfunding your farm
- Plan, plan, plan. Don’t rush into your crowdfunding campaign without a solid business plan that concisely conveys who you are and what you want to do.
- Use a site that fits your needs. Kickstarter has a wide audience, but it won’t let you keep any of the money you raise unless you reach your goals. Indiegogo lets you keep everything you raise, but it has a smaller reach.
- Offer rewards. Whether a GIF of a rooster crowing for a $5 donation or a year’s subscription to your CSA for $1,000, incentives help draw people in.
- Make the first few days successful. The first 48 hours can make or break your campaign. Reaching out to your network for donations in this crucial period can result in a smoother overall campaign.
Fast facts about Canada’s agricultural industry
- The agricultural sector generates over $100 billion each year for the Canadian economy and puts Canada among the top 5 largest agricultural exporters in the world.
- It used to take one day for a single person to manually harvest an acre of land. Today, a combine harvester can harvest 150 acres in the same amount of time.
- Canada is the #1 country in the world for exporting oats, canola oil, mustard crops and wild blueberries.
- (Unsurprisingly) Canada produces about 80% of the world’s maple syrup.
- Wheat is the nation’s largest crop and is its highest-earning exported product.
- In 2018, Canadian farmers produced 1.3 billion kilograms of beef and veal.
- Nearly 1,000,000 dairy cows call Canada home.
- Agricultural jobs provide a livelihood for 1 in 8 Canadians, or roughly 2.3 million people.
I got a farm loan. What can I expect?
How you repay your farm loan depends on the type of financing as well as the terms of your loan. Typically you’ll have to make fixed monthly repayments on interest and fees until you’ve paid it back in full.
What can I do if I’m struggling with repayment?
If you’re struggling with repayments, contact your creditors as soon as possible. They might be willing to rework your repayment plan, given the circumstances. Or, consider refinancing your loan with a different lender for more favourable rates and terms.
Running a new farm takes passion, dedication and hard work — not to mention time in finding the right funding to help you support its early days. As a farmer who’s just starting out, you have a range of options designed to get you funding. By knowing exactly what you need, you can compare and narrow your choices to one that fits your budget.
Frequently asked questions
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