FarmCash: A Short-Term Loan for Long-Term Impact

Written by Madeleine Berg and Syeda Khurram

The Alberta Wheat Commission’s FarmCash cash advance program offers farm businesses loans of up to $1 million, $100,000 of which is interest-free, for up to 18 months on crops and 24 months on livestock. At an interest rate of prime minus 0.75 per cent, FarmCash offers farmers the cheapest borrowed dollars available. FarmCash is much more than a bridge which provides flexible cash-in-hand before a season’s payments actually roll in. In fact, FarmCash can have a very major positive impact on your farm’s long-term financial health and sustainability.

First and foremost, FarmCash’s low interest means farm revenues aren’t lost to high interest fees, allowing a farmer additional dollars to invest back into the farm business.

Second, FarmCash can be leveraged for impressive investment return with negligible risk, translating to a farm business enjoying better overall financial health.

Consider this, the risk and return of a $1 million investment on the TSX or NASDAQ is governed by market volatility — you might win, you might lose. Conversely, a $1 million investment into your farm, when done via FarmCash’s ultra-low interest fees, is not influenced by market volatility, offering the potential for higher returns. A $1 million FarmCash loan at a blended interest rate of about 1.5 per cent, per annum, will cost approximately $15,000 over one year. Therefore, an investment in capital infrastructure or another revenue-boosting investment only needs to boost farm revenues by $15,000 before it begins tallying return on investment.

Third, FarmCash directly supports farmland value.

As we all know, farmland value is the backbone of most farm businesses. The interest rate on loans payable by a farm business has direct implications on total farmland value. Whereas FarmCash’s low interest makes investing into the farm business attractive, a high-interest loan discourages investment, putting downward pressure on farmland’s valuation. As such, whereas FarmCash’s low interest rate supports ongoing growth and external investment, a high interest rate loan can be a significant source of operating risk to a farm business. While multiple factors impact how much capacity a farm has to grow more profit, interest is by far the biggest.

Finally, FarmCash also delivers for those who are more interested in holding onto rather than selling their land. FarmCash’s low interest rate makes possible the continuous investment farmland requires. Managing land well enhances its long-term sustainability, increasing the likelihood that it can be passed on to future generations.

The Advance Payments Program is a federal loan program administered by the Alberta Wheat Commission. It offers Canadian farmers marketing flexibility through interest-free and low interest cash advances.

Originally published on January 4, 2021 in the Alberta Seed Guide.

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