How to get a loan for farm land
For farmers or members of local agricultural co-operatives, rural development loans are available through the Canadian Agricultural Loans Act (CALA) Program. Individual farmers can put these loans to work in establishing or developing farms, and co-operatives can use the funds to distribute, process or market farming products. Banks who extend loans that meet the requirements of the CALA program are guaranteed to recoup 95% of any losses on eligible loans from the government. As of 2015, these loans are capped at $500,000 for purchasing land and/or erecting or improving buildings, or $350,000 for any other purposes, such as refinancing or consolidating debts. Co-operatives can only take out an aggregate total of $3 million in financing.
Rural development credit requirements – How to finance farmland
You can apply for financing through this program if you are an existing farmer or are establishing a farm, either full or part time, or if you represent an agricultural co-operative that is made up of a majority of farmers. If you are starting your farm, part of the application process may include putting together an initial business plan as well as an income tax form showing that you don’t have any farm income for at least one year out of the last six. Agricultural co-operatives might need to show a current tax return showing that a majority of its members (50% plus 1) have made farm income. To satisfy the CALA requirements, farming consists of one or more of the following: producing crops in a field (cultivated or not), as well as horticultural crops; producing milk, eggs, maple syrup, honey, fibre, tobacco, fodder crops, and or wood from lots; or raising poultry, livestock and/or animals with fur.
Rural development funds for real estate property
If you want to use these rural development funds for real property, you can either purchase property with the money, or you can build or repair any structure or building on an existing farm. You can also purchase a structure or structures at another site and move that structure to your farm and (when needed) finish the building on your site. Basically, as long as you’re building or improving anything that will benefit the operation of the farm, you can use CALA rural development loan funds toward that purpose.
There are a few uses that are not ineligible. You can’t make improvements to the family dwelling, even if it’s on the farmland. You also can’t use it for any quota purchases, or to consolidate ordinary loans from a lender. Purchasing short term feeder livestock is also not an approved use for CALA loan funds.
If you are taking out this sort of loan, you have a number of different term options. You can set up payments on a basis that matches the income pattern of your farm, ranging from monthly or quarterly to semi-annually or annually. When you have a fixed rate loan, you’re allowed to make a 10% prepayment in addition to the minimum payments without any penalty. The purpose of this is to maximize your flexibility while keeping the bank interested on the profit side. CALA loans are generally available starting at a minimum of $10,000.
Security for CALA loans can take on a wide variety of forms — which makes sense, given the wide variety of potential uses that the money can fund. This could include some or all of the farm property, liquid investments that you or the co-operative owns, or other business assets.
In addition to CALA-specific funding, banks such as TD Canada Trust offer other financing options for farmers and agricultural co-operatives. An agricultural operating line of credit is an idea for farmers who do not know exactly how much they want to borrow from one month to the next but want access to credit. Farming is an industry that offers irregular income levels even in the most prosperous years, and having access to that line of credit means that borrowers only have to pay interest on what they use instead of taking out larger loans and then having more of a debt to pay.
Amansad Financial has relationships with lenders in Western Canada that offer financing to farmers and agricultural co-operatives, either through CALA-authorized loans or other lines of credit. Give us a call so that we can help you find the financing that you need to keep your farm or co-operative up and running. To Get Started, Pre-Qualify below: