If you don’t have money to get a farm, where do you get it from? That was the main problem that I am faced with, “how to get money to start a farm?” In Canada, we have some options that are available. I mentioned a couple ways to get money in my How to Become a Farmer post, however, I didn’t get into a whole lot of detail. In this post I am going to go into more detail about where you can get the money you need.
For the purposes of this post I am going to focus on loans that are available in Canada.
Canadian Agriculture Loan Act(CALA) i.e how to get money
This one is a federal program that is provided by Agriculture and Agri-Food Canada. You can access this type of loan through most major banks.
If you get money through CALA as a beginning or start up farmer, you will have to prepare a business plan and/or income tax form. I don’t know how to do that, looks like I have to learn how to write a business plan.
Here is the nitty gritty information about CALA that I think is helpful. I was actually surprised by how willing banks seemed to give money away. I was strangely reminded of Philip Shaw’s point about, “Don’t over extend yourself into debt. Debt can be a very good thing, but too much debt controls your life.” Talk about scary. Through CALA they are willing to give you up to $500,000. Here I thought my student loan was scary.
Essential numbers for a CALA loan
- Interest rate = prime + 1%
- Max amount = $500,000 for a land purchase or $350,000 for other uses
- Max term for loan = 10 years or 15 years with land purchase
- Repayment options = monthly, quarterly, semi annual or annual payments
- Fees = 0.85% of loan amount for registration and possibly 0.25% of loan administrative fee
Who is eligible?
- Existing farmers
- Beginning/start-up farmers
- Farmers taking over the family farm
- Agricultural co-operatives with a majority (50% plus 1) farmer membership
Which banks can give me a CALA loan?
What can I use a CALA loan for?
- Purchase land with the full $500,000 or $350,000 for other items
- Building /Construction
- Consolidation / Refinancing
- Co-operative Association
What can’t a CALA be used for?
- Refund taxes
- Equipment for custom work
- Recreational vehicles
- Operating loan
- Vehicles for personal use
- Cut flowers for the retail market
Farm Credit Canada (FCC)
Essential Number for the Young Farmer Loan
- Interest rate = prime + 0.5%
- Max amount = $500,000
- Must be under forty years of age
- Fee = no processing fee
This seems to be the ‘go to’ place for many people. They have a nice way of finding the right loan for you. They use a check box system in order to help you find what is right for you.
The loan I located that might be the most beneficial is the Young Farmer Loan. This one is directed at people who are under forty and looking to get into farming. Some of the interesting features that jump out at me are up to $500,000 and no loan processing fees. Also, it has a closed variable rate of prime (which is around 3.0% Nov 17, 2012) + 0.5%. That means you would be paying 3.5%
That one seems pretty nice because it is for people who are looking to either get started or to improve their farm. I actually contacted Farm Credit Canada for some information, but I haven’t received any information yet. I will give you an update when I get it.
It seems like a CALA loan may be the way to go for a young farmer. I think the real question now is whether you should go through a bank or a credit union. When I was looking through the various banks and other places where you could get a CALA loan, I got the most positive feeling from TD bank. My feeling was based solely on the website, so take that with a grain of salt. According to Canadian Bankers Association every major bank has a Agriculture Specialist. When I was looking for information I ran into this post which I found helpful. It is called Banking And Farmers, so I thought it might be helpful.
However, FCC does focus primarily on farming, so that may be a great benefit for long term borrowing. In the end, it really boils down to who you feel most comfortable with, and who is going to understand your needs the best.
Have you thought about how to get money to start a farm? Where did you decide to get it from and why?
Further reading for new farmers
- How to get money to start a farm
- How to buy farmland
- What is farm management?
- How to write a business plan
- Soil management for new farmers
- How to select a piece of used equipment with these four essential tips
- How to choose what type of farm to start