annual report 2011/12 - Manitoba Agricultural Services Corporation

LendingMASC’s lending programs give Manitoba’s agricultural producers and rural businesses reasonable access to credit. MASCprovides direct loans and guarantees loans from private sector financial institutions, thereby assisting in the creation andexpansion of operations in rural Manitoba.The Bridging Generations Initiative supports young farmers under the age of 40 by assisting in the inter-generationaltransfer of assets through flexible financing options, Young Farmer Rebates and Management Training Credits.Despite the general trend toward fewer young farmers, MASC’s involvement with this target group has increased for thethird consecutive year. In 2011/12, MASC issued 435 loans to producers under the age of 40, an increase of 49% over2010/11 and 61% over 2009/10. In dollar amounts, the total of $63.5 million in direct loans to young farmers representsa 56% increase compared to the previous year and a 93% increase relative to 2009/10. Loans to young farmersaccounted for 81% of MASC’s direct lending business.The Young Farmer Rebate (YFR) reduces the cost of borrowing in the critical start-up phase of an operation. YFRprovides an annual rebate of 2% on the first $150,000 of principal, and is available for the first five years of a loan,resulting in a lifetime maximum rebate of $15,000. In 2011/12, YFR totalled $1.5 million.Flexible financing options give young farmers a choice between 90% financing or five years of interest-only payments,allowing them the flexibility of reducing their initial down payment or easing their operation’s cash flow pressureduring its start-up phase. In 2011/12, MASC approved 118 loans for $14.5 million under the 90% financing option.Given that interest rates are currently at historical lows, the interest-only option is not attracting much attention at thistime.Young farmers can earn a Management Training Credit (MTC) of 1% of the principal amount of an eligible DirectLoan (to a maximum of $2,500) in each of the first five years of the loan. In 2011/12, young farmers earned MTCstotalling $188,000.LoansMASC provides short, intermediate and long-term financing with reasonable interest rates to eligible Manitoba agriculturalproducers and rural businesses. Clients are not penalized for prepayment, and have the flexibility of either locking in aninterest rate for the full amortization period (up to 25 years) or selecting renewable interest rates for one to five years. Asshown in Table 3, as of March 31, 2012, MASC had 4,394 outstanding loans with current balances totalling $347.1 million.Direct Loans are available for such purposes as purchasing land and buildings, constructing or renovating farm productionbuildings, purchasing breeding livestock, constructing or renovating farm homes, purchasing supply management quota, andconsolidating and refinancing debts.2011/12 Annual Report 19