Financing Your Farm Purchase and Operations

The agriculture industry in Ontario and Canada continues to consolidate. There were 193,492 farms in Canada in 2016, down 5.9% since 2011. While farm numbers have declined, the average area per farm increased from 779 acres in 2011 to an average of 820 acres in 2016.

Farmland values have also increased significantly in the last decade. Farm Credit Canada Farmland Values report indicated that the average value of Canadian farmland increased 8.4 per cent in 2017. In Ontario, the increase was 9.4 per cent. Crop inputs and equipment have also increased in cost. So whether you are an established farmer, or a farmer looking to grow, securing adequate financing to support your operations is essential. There are many financing options available for farmers. In this article, we explore several farm loan options that may assist finance your farm operations.

Farmland Mortgages

Mortgage loans are the most common type of financing used by farmers. A mortgage is a form of security in which a borrower permits the lender to register a mortgage (also known as a charge) against the land of the borrower as security for the payment of the loan offered from the lender. In the event the borrower defaults on the loan, the lender can foreclose and take ownership of the land, or more typically, will conduct a power of sale which results in the sale of the land to recover the indebtedness owed to the lender.

Mortgage loans may be used to secure financing to buy land, or may be used as security for a credit line or equipment loan to acquire other assets.

Equipment Financing

As the size of farms have grown, so has the equipment requirements to operate the farm. Many farm equipment vendors offer financing options and leasing options for equipment. These options typically have higher interest rates either expressly stated or buried in the purchase price. As security for financing or leasing, the equipment vendor will often register a security interest against that equipment in the Personal Property Security Act registry. This security interest allows the equipment vendor to take back possession of the equipment should the purchaser default in payment such as a payment plan or leasing.

Crop Input Costs

Some crop input suppliers will allow a farmer to buy crop inputs on credit. This may be in the form of trade credit, where the farmer takes possession of the crop inputs but pays later. The supplier may also obtain a form of security over the farmers crops. This is called a Purchaser Money Security Interest, and if property registered and perfected, provides a supplier of crop inputs with a super priority security interest over the farms crops. In the event of default, the supplier may seize the farmers crops and sell those crops to recover the indebtedness owed to the supplier.

Farm Grant and Loan Programs

The Government of Canada and Ontario from time to time will offer grants and partial loan programs to support the agriculture industry. Grants may be available to assist farmers with facility expansion, hiring employees, installing energy efficient equipment, exporting products, training staff, improving soil health and investing in new technology.

Grant applications are administered through various government agencies and each usually has a unique application procedure. Grant applications have strict deadlines to file and may require the farmer to provide a business case or attend a workshop.

To learn more, visit the Canada Business Network. This government organization maintains an extensive database on grants and loans for all kinds of small business owners including

Working with a Lerners Agricultural Lawyer

The road to getting a mortgage for farmland or farm operations may seem overwhelming, but with guidance and expertise, you can work towards life as a farmer. At Lerners LLP, our Agricultural Law Group can help clients with all aspects of agricultural law, from sales to financing to succession planning and wills.

For more information, please contact us at: 519-672-4510.