Written by Emily Johnson and Syeda Khurram
When I asked a producer why they used FarmCash, they replied, ‘When I think about ‘investment tools’ for my operation, I focus on ‘financing tools’ that increase my opportunities to leverage better returns for my farm’.
It is an increasingly common practice for producers to take on loans in order to meet timely financial obligations and sustain the long-term value of their farm. Per Statistics Canada, farm debt increased by 6.2 per cent on a 10-year average. Operating loans and lines of credit are considered essential instruments for maintaining short and long-term economic sustainability of a successful farming operation. This is because farming requires continual investment and robust loan management planning to maximize productivity by upgrading farming equipment or land.
A loan is an investment tool producers can leverage to drive healthy growth for their farm and meet goals efficiently whereas exhausting cash can negatively impact farm working capital.
It is a very important decision for producers to choose the right type of loan as different loan options can make the difference between good or bad debt for a farm operation. When thinking about loans and other investment tools, farmers should consider prioritizing their business needs and personal needs to enhance financial growth. For example, business loans are tax deductible however personal loans are not. Another good rule to follow is to never finance something beyond its useful life.
The most important factor in determining between good or bad debt for your farm is the interest rate. Any financing instrument with a high interest rate used for farm expenses can jeopardize profits in the long run, regardless of if it is a loan, credit card or line of credit. Other factors that can impact profitability are loan terms, repayment timelines, return on investment and the flexibility to use it.
FarmCash provides access up to $1 million with the first $100,000 interest-free and the remainder at TD prime minus 0.75 per cent, giving producers low interest rate benefits.
FarmCash also offers manageable repayment timelines that yield higher profits and maintain the long-term sustainability of farming operations, all while providing flexibility on how producers want to invest. As a result, maximized farm productivity drives the business forward.
Let’s take a look at an example on how FarmCash is a more sustainable and better option for farmers than most loan options:
On 1500 tonnes of wheat and 2500 tonnes of canola, a producer is eligible to receive $696,460*. The first $100,000 - farmers pay zero interest. And the remaining $596,460 – farmers incur prime minus 0.75 per cent.
Using a FarmCash advance, the annual interest expense a farmer would pay is $10,139. In comparison for a loan of the same amount, a farmer could pay up to $41,787.60 in interest at a rate of 6 per cent annually from different lending institutions. FarmCash would reduce farmers’ financing costs by $7.91 per tonne and increase profitability by 4.54 per cent. The cost savings due to reduced financing fees allow producers to make better investment decisions.
FarmCash is more than a loan, it is an investment tool that increases a producer’s cash balance allowing them to invest in farm assets and enhance profitability. Having strong equity is good but a strong cash balance is even better. Producers interested in fueling their farm investments with FarmCash can apply for free using our simple online application at FarmCashAdvance.com and receive their advance in as little as 3-5 business days or call 1.855.376.2274 to speak with a FarmCash representative.
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 1, 2021 in GrainsWest.