by CFSA Policy Team | Tuesday, Apr. 7, 2020 — (Last updated Friday, Apr. 24, 2020)

Washing carrots at a farm washing station

Update, Friday, Apr. 24:

Want more info? Farm Commons is hosting a webinar on Apr. 30 at 4 pm ET, “PPP Updates for Farmers and Ranchers Affected by COVID-19.”

As of today, Congress has appropriated an additional $310 billion for the Paycheck Protection Program (PPP) after the initial $349 billion was exhausted.

Moreover, Congress has set aside $60 billion of those new funds for loans by small banks, credit unions, and community development financial institutions. Many small and mid-sized banks that were not enrolled as SBA lenders when PPP was first rolled out have signed up since the start of April. Contact your existing bank to find out if they are now an approved SBA lender and can take your PPP loan application.

Paycheck Protection Program

The Paycheck Protection Program (PPP) is part of the massive economic rescue package passed by Congress last week to address urgent needs created by the COVID-19 pandemic. Incorporated businesses, sole proprietors, single-member LLCs, self-employed individuals, and nonprofits are all eligible to apply for this relief. Congress set aside $349 billion for this program.

Farms and businesses with fewer than 500 employees and that meet the Small Business Administration’s definition of ‘small business’ can apply for a federal emergency relief program starting April 3.

How It Works: Eligible operations, including farms, can receive an emergency loan equal to 2.5 times their average monthly payroll costs, measured over the 12 months preceding the loan origination date, plus an additional 25% of the payroll amount to cover non-payroll costs.

Payroll costs include

  • Salaries, commissions and tips paid to full- and part-time employees;
  • Employee benefits (including health insurance premiums and retirement benefits);
  • State and local payroll taxes; and
  • Compensation to sole proprietors, which would include the compensation that a farm or business operator pays to themselves.

Eligible non-payroll costs include

  • Interest on mortgage obligations incurred before Feb. 15, 2020;
  • Rent under lease agreements in force before Feb. 15, 2020; and
  • Utilities for which service began before Feb. 15, 2020.

Although the payment is made as a loan, any loan proceeds that you use to cover payroll costs, mortgage interest, rent, and utilities during the eight-week period after the loan is made can be forgivable. In other words, the amount of loan funds that you use for those expenses essentially becomes a grant and does not have to be repaid, so long as 75% of those funds are spent on payroll.

No collateral or personal guarantee is required to receive a loan.

Warning: Your loan forgiveness amount will be reduced if you:

  • Don’t maintain the number of full-time employees you had on staff as of Feb. 15, 2020; or
  • Decrease salaries and wages by more than 25% for any employee that made less than $100,000 in 2019; or
  • Spend more than 25% of the proceeds on non-payroll costs.

However, PPP borrowers that do make such staff or payroll reductions between February 15 and April 26, 2020, can regain eligibility for full forgiveness of the loan proceeds used for forgivable expenses if they restore their full-time employment and salaries to their Feb. 15, 2020 levels by June 30, 2020.

Loan Forgiveness Not Automatic: You will have to make a formal request to your lender and provide documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on an eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender then has 60 days to make a decision.

For loan amounts not eligible for forgiveness, loan payments are deferred for six months from the date of origination. The loan term is two years, with a 0.50% fixed interest rate, and there is no penalty for early repayment.

Eligibility Note: In addition to having fewer than 500 employees, your business must also fall under the cap set by SBA for defining ‘small business’ in your sector. For farms, including livestock and aquaculture, that cap is $1 million in annual revenues. For timber and fishing operations the revenue cap is even higher, and for food manufacturing operations there is no revenue cap to be eligible.

Where to Apply: Loans are made by banks and other financial institutions that participate in the SBA’s 7(a) loan-guarantee program. SBA does not make the loans directly and does not receive the applications. Access to financial institutions was a major issue in the first round of PPP funding, as not all banks that were enrolled as SBA lenders were willing to take PPP loan applications from new customers.

Many small and mid-sized banks have signed up with SBA since the start of April, and Congress has set aside $60 billion of the new infusion of funds for loans by small banks, credit unions, and community development financial institutions. Contact your regular bank to find out if they can take PPP loan applications. Also note that some fintech companies, including PayPal, Square, and Intuit, are accepting loan applications for the PPP; these entities could be good alternatives if you are not already a customer of an approved SBA lender.

We recommend you contact your regular banker first. As of April 14, some fintech companies including PayPal, Square, and Intuit are accepting loan applications for the PPP. This is recommended if you do not already have an existing loan with an approved SBA lender.

How to Apply: You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender by June 30, 2020. Your lender can provide the application. You will also need to provide your lender with payroll documentation.

When to Apply: Now! Financial institutions that are approved SBA lenders are currently accepting applications. Institutions that become SBA lenders in the future will be available to make these loans as soon as they are enrolled in the program. The agency encourages operations to apply as quickly as possible because of the overall cap on the program funds, and the amount of time lenders will need to process loans.

Conclusion: This program could be a very valuable form of emergency relief for small farms. To be most helpful for most small farms in terms of obtaining the largest loan possible, farm operators will need to be able to show that they paid themselves compensation in the past 12 months; in the case of farms organized as sole-proprietorships, a farm would need to either document wages paid to the operator, or the amount of the farm’s net earnings, over the prior 12 months.

 

Want More?

For more information, see these resources from the SBA.

Also, Farm Commons is hosting “PPP Updates for Farmers and Ranchers Affected by COVID-19,” a webinar on Apr. 30 at 4pm ET. Register in advance.