Latest articles

Cash advances eases interest rate pain

The federal government's Advance Payments Program offers interest free farm loans

Over 10,000 producers use the Canadian Canola Growers Association’s (CCGA) cash advance program every year. The program advances around $1.5 billion annually, mainly to grain and oilseeds operations.

CCGA is one of largest administrators of the Advance Payments Program (APP) to Western Canadian producers. The APP is a federal government program made available through Agriculture and Agri-Food Canada that offers farmers cash advances against the sale of their crops or livestock.

The APP provides up to $100,000 interest free and up to $400,000 at a blended interest rate to eligible producers growing any of 45 eligible commodities. Interest-free money always sounds good, but the real value for producers is in the blended interest rate, says Dave Gallant, director of finance and operations at CCGA.

“The program cap is $400,000 and when you look at the fact that the remaining $300,000 is at prime with CCGA, your blended rate is well below prime,” says Gallant. “Right now, prime is 3.95 per cent. If you take a weighted average it works out to about three per cent is your blended rate for $400,000.”

Against the backdrop of steadily rising interest rates, the APP looks like an even better deal, so are more producers flocking to it? “It’s a difficult question to answer, says Gallant. “Interest rates are just one element, [and there are other factors that affect farmers borrowing decisions] such as prices and how crops are moving. We have seen a slow increase in farmers using the program, but we are also seeing an increase in the dollar value that the farmers are taking out with us. I think that increase in dollar rate from existing customers is more a reflection of farmers getting the message that this blended rate below prime is even more valuable to me now that the interest rate is at 3.7 per cent versus 2.7 per cent a year ago.”

One of the other advantages to the APP is that producers only repay the cash advance as they sell the product they took the advance against. “It gives farmers the flexibility to only pay off that loan when they actually have cash generated from the product they have sold,” says Gallant.

How to apply

Producers can apply for the APP online, via email, fax, over the phone or in person at a CCGA office, local elevator or by mail. Application forms can be downloaded from the CCGA website. They can manage their CCGA Cash Advance account online and funds can be deposited directly to their bank account or can be paid by cheque. Producers can repay the advance through their financial institution either online, in-branch or over the phone, or they can have the elevator deduct the payment and submit it to CCGA on their behalf when they deliver their grain.

There is an administration fee, which was reduced to $50 from $150 this year, and the only security required against the advance is the inventory that it is assigned to. In some cases, a producer may have to assign Crop Insurance, Agristability or GARS payments if they are applying for an advance on grain that hasn’t been produced yet.

CCGA will perform credit checks, especially for larger advance and users new to the program, but repayment history is also a big factor in the lending decision, says Gallant.

Program default rates are low: around one to 1.5 per cent. “We work really hard with our farmers during the production period to get it paid back,” says Gallant. “There are always a few that have difficulty meeting the deadline and most of those will be paid shortly after the deadline date. The legislation allows us to work with the farmer for up to three years after required payment date to get the payment settled, so our goal is to get those farmers accounts settled so they can get back in the program.”

The APP is also offered by many other provincial and commodity organizations besides the CCGA. For a full list of administrators go to www.agr.gc.ca, and type “Advance Payments Program Administrators” into the search box.

About the author

Contributor

Angela Lovell is a freelance writer based in Manitou, Manitoba. Visit her website at http://alovell.ca or follow her on Twitter @angelalovell10.

explore

Stories from our other publications

Comments