Financing that keeps the cash flowing: don't miss out!


Under the APP, you can get up to $400,000 in cash advances per year.

Étienne Gosselin | Agronomist | Journalist

Agricultural activities are by their very nature cyclical or seasonal. To help farmers with the uneven flow of cash, the federal government introduced the Advance Payments Program (APP) in 2007. The APP provides agricultural producers with access to low-interest cash advances.

According to René Gagnon, one of Desjardins's specialists in the agriculture and agri-food market, farmers have plenty to gain from the Agriculture and Agri-Food Canada Advance Payments Program. We take a closer look at what the APP has to offer.

About 40 recognized associations and specialized federations manage the program, which uses funds from financial institutions like Desjardins. The agricultural products eligible for the program are crops, fruits and vegetables, livestock and certain breeding animals (not under supply management), honey and maple syrup.

A great, little-known financing option 
Under the APP, you can get up to $400,000 in cash advances per year. Diane Martel, the finance and accounting manager at Éleveurs de porcs du Québec (Quebec pork producers), explains how it works: the government pays the interest on the first $100,000 advanced, and the rest of the loan earns interest at a preferential rate--for example, prime less 0.25%. 

"It's a great, well organized program," adds Gagnon. "But you need to remember, this isn't a grant or subsidy. It's a loan backed by tangible assets: your product is required as security. It's a program that a lot of people don't know much about."

Martel's numbers support Gagnon's observation. Over the last year, out of 1,918 Quebec pork producers (of all sizes) only 133 participated in the program. "However, some producers apply for an advance under a different category, which means they can't qualify for a second advance," she explains.

One final detail: there are administration fees associated with the program and they vary by administrator. For example, Éleveurs de porcs du Québec charges 0.1% of the advance, up to a maximum of $100. The organization has significantly reduced its administration fees, which were previously 0.75% (for a minimum of $450 and a maximum of $1,250), at the request of hog farmers.

3 ways to use your advance
1. Offset farm input costs incurred during the year.
2. Postpone the sale of your product until market conditions are better rather than selling because you need the cash flow.
3. Invest in new assets. While the program was created to support day-to-day operations, some producers use the APP at their own discretion to get low-cost access to cash. The advance acts as a sort of interest-free line of credit for the first $100,000, as long as it's repaid in full within 18 months (24 months for cattle producers), according to the repayment agreement.

2 mistakes to avoid
Agronomist René Gagnon shares 2 traps he's seen farmers fall into that often go hand in hand: 

1. Overestimating the cash advance
Fams need to stop and calculate the amount of the advance needed without overestimating--that's why you need to know your farm's production costs.

2. Poor cash flow planning 
When setting up the terms for repaying an advance, farms must have an accurate idea of their expenses throughout the year and plan their sales accordingly.
 
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