The organizations administering cash advances want farmers to know they can get low-interest (and even no-interest) loans against seeded and stored crops with just one string attached: they must repay the loan as they sell their crop.
The first $100,000 is interest free and as much as a further $900,000, depending on where you get the advance, is close to interest free.
Advances through the Canadian Canola Growers Association (CCGA) are bank prime (2.45 per cent) minus 0.75 per cent for a net rate of 1.7 per cent.
Those eligible for the full loan of $1 million will pay an effective blended rate of 1.5 per cent, Dave Gallant, the CCGA’s director of finance and operations said in an interview March 16.
“On a $1-million advance, if you took that at the bank at prime you’re going to save between $9,000 and $10,000,” he said. “It’s getting awfully close to free.”
The point of the program is to make farmers better off, Gallant said.
“There are zero restrictions on the use,” he said. “That’s a difference between this and some other financing arrangements. This is not just for inputs. You could use this to cover your costs for labour to get the crop in, you can use it to pay your taxes. You can use it for capital expenditures if that’s what you choose to do. The fundamental rule is as you deliver the product you took the advance on you repay it. So you can use the funds without any restriction whatsoever. We deposit in your bank and don’t ask any questions.”
AgriInvest account needs topping up? Go ahead so long as the loan is repaid as crops are sold, Gallant said.
“It’s not well suited for capital purchases because it’s got to be paid off in the short term,” he added. “But if it meets a cash flow need to make a capital purchase that you are prepared to pay off with grain deliveries, use it as you see fit.”