A piece of Canadian farmland is a dream for so many. A productive cropland or an acreage, you can do so much with one. You may want farmland loans to expand an agricultural business idea. The main hurdle is getting and securing farmland loans.
This blog walks you through it all. Learn the basics of farm financing in Canada. Roll the pastures, get a productive cropland or embrace the rural life. Let’s help you understand how it works and what lenders want.
What Are Farmland Loans and Why Are They Different
Farmland loans are a type of financing that people use to buy agricultural property. These are not for homes. The loans are specifically made for farm or agricultural use. Such loans involve larger amounts of money and bigger land parcels.
You can use these loans as farm operating loans to buy land. Lenders consider it an investment rather than just a property purchase.
Types of Farmland Loans in Canada
If you want to apply for farmland loans, online or offline, you need to understand the difference between farmland loans. Here are 3 types:
1. Canadian Agricultural Loans Act (CALA) Program
The CALA program is a federal program. It gives you loan guarantees if you’re a farmer or an agricultural co-operative. Under this program, farmers get access to up to $500,000 for land and buildings. If your project is related to equipment or livestock, you can get up to $350,000.
2. Farm Credit Canada (FCC)
FCC is a Crown corporation. It offers a range of financing options to the agricultural sector. Their services include any loan you want for buying land, equipment or livestock.
FCC also offers special programs for women in agriculture, Indigenous farmers, and young farmers under the age of 40.
3. Commercial Bank Loans
Commercial banks in Canada, like RBC, CIBC, and Scotiabank, also offer agricultural loans. Keep in mind that these are more competitive in terms of interest rates. These loans require you to provide more details or business plans and a higher down payment.
Only apply for this loan if you need to purchase farmland, upgrade equipment or expand operations.
The Down Payment Problem
For farmland loans, you need a down payment for farmland, which is not included in residential mortgages. Lenders may ask for 20% to 35% or more of the purchase price.
In residential areas, it is around 5%. The down payment for farming lands is so high because of increased risks. However, a specialized lender can always help. Or if you want, you can ask for help from professionals like Darren Sander Realty.
How to Apply for a Farmland Loan: Step-by-Step Process
A farmland loan application is not as hard as it might sound. Just follow these steps.
Step 1: Pre-Approval:
First, talk to a suitable specialist. You can get pre-approved. This will help you to understand how much you can borrow and what terms you can expect.
Step 2: Gather Documentation:
Be prepared with paperwork. You need to provide extensive financial information. This includes tax returns, proof of income, credit information and your statements.
Step 3: Find the Right Property:
Get in touch with a realtor who is experienced in farmland. Professionals can help you find the right properties. They will match it with your budget and operations.
Step 4: Formal Application and Appraisal:
Have a specific property in mind. Then you can submit your formal loan application with all the supporting documents. Then the lender will order an appraisal of the land to confirm market value.
Step 5: Review & Approval:
The lender reviews your complete file. If it ticks all the boxes for the criteria, you get a loan approval. Then, lawyers will handle the title transfer and registration of the mortgage.
Taking the Next Step Towards Your Farm
In Canada, you can get a farmland loan with careful planning and preparation. Give yourself time for the applicable and pre-approval process. You have to focus on greeting your finances in order. How? Check your credit and save for a down payment.
Also, don’t forget to shop around and compare offers from various lenders. For instance, FCC, banks, and credit unions.
