Farm Credit Canada (FCC) says changes to its transition loan will make transferring farm assets easier for buyer and seller.
Colin Brisebois, vice-president of products and market strategies with FCC, said the new enhanced loan will benefit farmers, given the current financial realities of agriculture.
“I think it’s important now as the industry continues to evolve, the price of assets continues to grow and there continues to be opportunity to do more on the farm transition side — as far as having the next generation take over for those currently involved in the industry,” he said.
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Why it matters: Modern farms in Western Canada are big business, making the stakes for farm succession planning equally daunting.
The new terms allow disbursements to the seller over a period up to 10 years. The loan can be used by farms, agribusiness or food businesses who are changing ownership, inside or outside a family.
Sellers have their payments guaranteed by FCC and support the next farming generation, while buyers dodge the need to have enough up-front capital for a down payment, the lender says.
For people looking to start or expand operations, the transition loan allows FCC to finance the full purchase price of the transaction and would allow that new entrant, or someone new to the industry, to potentially build equity faster than a standard loan, assuming they can eat the cost of accelerated principal payment. Or, the new owner can choose a path that prioritizes cash flow, making interest-only payments and using the extra money to invest in other parts of the business, especially if they’re in the early stages of starting their business or farm, said Brisebois.
It gives those buying into the business flexibility, according to FCC.
The loan terms also include access to FCC’s AgExpert farm management and accounting software.
The resources tab on the FCC website includes a transition loan calculator allowing people to run different scenarios in the equity-building pathway or the interest-only pathway.
Farm succession wave
The next few years could be big ones for farm transitions.
“There is about $50 billion in assets to be transferred over the next five years, and we want to be able to provide solutions to help in the transfer of those assets,” said Brisebois.
