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Private Lending for Agricultural Properties

Private Mortgage Lending for Agricultural Properties

Private loans cater to the unique needs of Ontario’s agricultural industry for several reasons, including the fact they are more flexible than traditional loans. Private lenders can supply products geared explicitly for farming operations, buying equipment, and even purchasing land.

Private loans for farmers come with several unique considerations that make them different from those available from banks and credit unions.

How does private lending work for farms and agricultural properties in Ontario?

Private lending is an excellent alternative loan source for agricultural properties and farms. One of the reasons private loans are attractive to people in this industry is the unpredictable nature of farming. 

Financing can be provided for different needs, including equipment storage, grain storage, feed storage, greenhouses, farmland purchases, and equipment purchases. A private mortgage broker can lend money for land improvements and tiling projects.

These private mortgages, also called agricultural mortgages, offer more flexibility on repayment and other options like credit history.  

What are the unique considerations for lending in the agricultural sector?

There are several considerations in the agricultural industry for applicants considering private mortgages. For example, lenders can offer a higher loan-to-value ratio for agricultural properties because they have more extensive possibilities for income generation.

Some of the other unique considerations include the evaluation process. Private lenders emphasized the appraised value of the property. Agricultural properties can have a more complex valuation because various equipment, buildings and land must be included.

Some of these mortgages can consist of a debt transfer option. These are usually available with a different traditional mortgage. These come in handy for succession planning, the sale of a property or the transfer of an agricultural business. The debt transfer option allows the existing debt on any property or business to be transferred to another party. 

  • Lenders usually consider any additional collateral That can include everything from existing crops to livestock and equipment.
  • Interest rates can be higher in this sector due to a perceived risk.  

Are there specific risks associated with private loans for agriculture?

The risks associated with private lending in agriculture are based on a few variables.

Market Fluctuations 

One of the significant concerns private lenders face in this industry is the volatility of agricultural commodity prices. Geopolitical events, weather conditions and changes in global supply and demand can all contribute to a borrower’s ability to repay these loans. 

Climate Risks  

Unpredictable weather events like floods, droughts, and hurricanes can cause crops to fail. That impacts a farmer’s ability to repay the money they’ve borrowed.

Financial Risk 

Rising Bank of Canada rates can affect the interest rates private lenders can offer. The central bank has raised that rate ten times between March of 2022 and July of 2023. The benchmark rate rose to 5% after starting at 0.25%. The rate sits at 5% as of Jan 24, 2024. 

The rising cost to service this debt can worsen when commodity prices are low. Higher interest rates make a carryover debt harder to manage. This carryover debt is the remaining debt on any operating lines after the inventory is sold. 

The Nature of Farming 

One of the most significant risks is farming itself. Harvest and planting cycles can have income fluctuating and make cash flow management challenging. Longer growth cycles that result in a single harvest once per year can make the risk even bigger for lenders and borrowers. 

Considering these specific risks, it’s easy to see why farmers would see the advantage of alternative loans.

How can farmers in Ontario leverage private lending for growth?

There are several reasons why private lenders should be attractive to people working in the agricultural industry.

  1. These loans are more flexible than those of a traditional bank or credit union counterpart. They rely less on the credit score and more on the equity the applicant has put together. Because these loans can be processed quickly, they are an excellent choice for agricultural requirements during harvesting and planting seasons. 
  2. Private lenders don’t have the same stringent qualifications as banks and other financial institutions. This is a bonus for an agricultural business looking to expand or a brand-new farm without a robust economic history. 
  3. Farmers who own agricultural land looking at a power of sale or foreclosure can find relief with a private loan. Private mortgages can stop the powers of sale and foreclosures. It’s important to remember that the lender can sell the property with the power of sale. If it’s not stopped, that same lender can also take the title to an agricultural property with a foreclosure. 

Farmers can also leverage these private loans with consolidation products. Getting one of these loans through a private lender can simplify financial management and make it easier for them to keep track of obligations.

One of the other bonuses to this type of loan is that the borrower might qualify for a lower interest rate. Private lending can also help farmers improve their cash flow. That, in turn, can help them manage their operational costs while strengthening liquidity. 

Are You Looking For Private Loans for Agricultural Properties? 

Mortgage Broker Store focuses on numerous mortgage-related products. One of our priorities is mortgages that don’t meet traditional lending institution requirements. Our team includes private lenders, brokers, and authorized mortgage agents. Let us help you prepare for and get a product that meets your requirements. 

Email ron@mortgagebrokerstore.com or call 416-499-2122.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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