Business side: Advanced Payments Program

CONVERSATIONS WITH BUSINESS EXPERTS

Sam Zahnd, Manager, Business Development, Agricultural Credit Corporation

Why was the Advance Payments Program developed and who is it for?
The Advance Payments Program (APP) was established by Agriculture and Agri-Food Canada to assist producers in managing their cash flow. Currently the program offers advances of up to $400,000 with the first $100,000 interest free with the balance at bank prime lending rate. Due to the inherent conditions of farming, cash flow is an ongoing challenge, as producers incur significant upfront costs with no guarantee that market conditions will be favourable when the product is harvested. Instead of, or in conjunction with, utilizing an operating line of credit or savings, the APP was designed as a low-cost bridge between when producers incur these significant upfront costs and when producers start earning revenue. The program was also designed to provide the flexibility necessary to extend marketing periods to capture more favourable markets. Currently, the Advance Payments Program covers over 200 product classes and over 4,500 different products.

What are some of the specific details of the program that grain farmers need to be aware of?
For the Grains & Oilseeds industry, producers can receive advances beginning on April 1 of each year under the Pre-Harvest Input Program. Under the Post-Harvest Component of the Input Program, funding begins October 1 with initial or additional funding available for crops in storage. The total duration of the program is up to 18 months with final repayment due no later than September 30 of the following year.

Producers can receive a cash advance on up to 50 percent of the expected average market price of the agricultural product. Diversified producers can apply for an advance on their multiple products (e.g. wheat, corn, livestock and horticultural crops) all at one time using a simple process. Security requirements for cash advances on products that are not in storage require an eligible BRM program as security, specifically Production Insurance and/or Agristability. For crops in storage, the product itself is used as security and Production Insurance and/or Agristability are no longer eligibility criteria. 

What are the advantages of this program versus a regular bank loan?
The key advantage that the Advance Payments Program has over typical financing is the cost. As the first $100,000 of the advance is at zero percent interest and the additional $300,000 available at bank prime lending rate, the borrowing costs are the lowest in the market. Also, financing is available for a wide range of products, so it may be easier to access funding for niche products versus traditional financing. The application process is simple and efficient and the advances are funded electronically directly into a producer’s bank account.

Is there a limit to the amount of funds a farmer can borrow?
The limit on an advance is $400,000. If a producer’s production period overlaps, the producer is still eligible for the $100,000 interest free component in the next production period, but they may not have a balance outstanding greater than $400,000 at any one point in time.

Is there a restriction on how the funds can be used and does a farmer need to provide you with an accounting of how and where the funds are spent?
No, there is absolutely no restriction on how the funds are used. Producers are given the freedom and flexibility to use the funds as they see fit to manage their operation.  Producers do not have to supply any fund disbursement information other than proof of sale of their eligible agricultural product upon repayment.

How does a farmer pay back the loan and how long do they have to do so?
Cash advances must be repaid within an 18 month period under the Input Program, running from April to September of the following year for the grains and oilseed industry.  The producer must repay the cash advance as the agricultural products are sold and must provide proof of sale. In case of production loss, payments received under the Production Insurance or Agristability program will be applied to repay the advance. The final repayment deadline is September 30 of the following year to allow for adequate time to market stored crops.

If a grain farmer is interested in the program, where can they get more information?
Farmers can visit Agricultural Credit Corporation’s website at www.agcreditcorp.ca for details about the program and how to participate, email us at info@agcreditcorp.ca or call us at 1-888-278-8807 and speak to one of our representatives. Application forms are available for download at www.agcreditcorp.ca/ loan_applications. •

About Rachel Telford 84 Articles
Communications Coordinator, Publications, Grain Farmers of Ontario; Managing Editor, Ontario Grain Farmer Magazine