Straight talk on amortizing quota
RBC Royal Bank’s network of account managers work with many of Canada’s finest farmers and ranchers. In the supply-managed sector, one of our clients’ most
frequent questions is: How long will you amortize loans for production quota? Our policy is up to 10 years. However, depending on the security package that
is available, we can extend the terms based upon each customer’s situation and their debt servicing capacity. As you may know, some financial institutions will
amortize dairy, chicken and egg quota for 15 or even 20 years with interest for only a portion of that time. So why do we try to stick to 10 years at RBC?
This past summer, World Trade Organization talks broke down, and it’s unclear when or how they will proceed. It is also unclear at this time how Canada’s position
and strategy will evolve. Such uncertainty creates a challenging lending environment.
We take great care, both for the sake of the bank and our clients, that the amount remaining on a loan never exceeds the value of the asset being financed. With land,
equipment and breeding stock, this is usually straightforward. Not so with quota, an intangible asset operating in a complex business and political landscape. As a
bank we have no sound valuation methodology that projects what quota will be worth in 2022 or 2027. We are, however, confident that if there ever were a change
in policy, there would be an adjustment period.
Occasionally we lose quota business to lenders that amortize for up to 20 years. We’ll try everything in our power to earn your business, and we will take a
customer-by-customer approach, using the total security package offered when structuring the deal to provide the optimal amortization.
As with biofuels, it’s important to perform some due diligence before making a commitment. Talk to a number of people in the industry, until you have satisfactory answers to your big questions. Do your research by measuring the wind potential of your site for a 12-month period.
Among Canada’s banks, RBC Royal Bank is the largest lender to dairy, chicken and egg producers. We’re confident that, whatever the future holds, Canada’s efficient
and progressive producers will continue to succeed.
If you have any questions or concerns about quota financing, I invite you to contact your account manager. On behalf of RBC Royal Bank, I wish you all the
best for farm and family in 2007.
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