Loans aim to help farms, businesses with payroll

Issue Date: April 8, 2020
By Ching Lee

Farmers and ranchers are eligible to apply for the federal Paycheck Protection Program, which authorizes up to $349 billion in forgivable loans to small businesses, including farms and ranches of all sizes and other agricultural employers, to pay their employees and certain expenses during the COVID-19 crisis.

Eligible businesses including farms and ranches may apply for a loan of up to $10 million based on their eight weeks of prior average payroll, to cover 2.5 times the average monthly payroll costs, plus an additional 25% of that amount. Available through June 30, PPP loans will be fully forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, mortgage interest, rent or utilities.

Initially, agricultural advocates raised concerns that U.S. Small Business Administration revenue standards would exclude thousands of agricultural producers from receiving loans. But the program's interim final rule, which SBA released last week, removes those revenue thresholds and makes clear any small business with 500 or fewer employees is eligible for the loans, regardless of revenue levels.

Small businesses with more than one location could also be eligible if their individual locations employ 500 or fewer workers.

For the loan to be forgiven, at least 75% of the loan amount must be used for payroll during the eight weeks after the loan is made. The other 25% may be used for nonpayroll costs incurred before Feb. 15.

The "real highlight" of the program, according to Veronica Nigh, an economist with the American Farm Bureau Federation, is that the portion of the loan that covers eligible expenses from Feb. 15 to June 30 is forgivable so long as the company maintains staff and payroll.

Payroll costs—capped at $100,000 per employee on an annual-salary basis—include salaries; employee benefits such as health-insurance premiums, vacation and sick leave; and state and local taxes.

The final rule does not count wages paid to H-2A workers toward a farm's payroll cost, Nigh noted. Independent contractors also do not count toward payroll costs or toward the business's employee numbers, she said.

"The logic here is that independent contractors are eligible to apply for their own PPP loan," she said.

Loan payments won't start for six months, with an interest rate of 1%. The maximum duration of the loans is two years.

"Intended to keep small business employees on the payroll, the PPP will likely be an important lifeline for many, including independent contractors and the self-employed who will benefit from the program's expanded eligibility," Nigh said, stressing that funds from the program will be available on a first-come, first-served basis.

The SBA encouraged eligible businesses to apply as quickly as possible. Farmers can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. Other regulated lenders will be available to make PPP loans once they are approved and enrolled in the program.

SBA began accepting applications April 3, and said applications for independent contractors and self-employed individuals would be accepted beginning April 10.

Erin Huston, federal policy consultant for the California Farm Bureau Federation, said because PPP is a new program, Farm Bureau continues to review the interim rule for clarity.

Outstanding questions about the rule include whether funds used for rent payments are limited to building rentals or if they could include equipment, land and other things that are rented. Nigh said SBA does not define "rent" in the final rule and AFBF has asked for a definition.

AFBF is also working to clarify whether H-2A workers count toward a farm's total number of employees. Nigh said a farm's affiliations could potentially affect the company's number of employees and will be determined on a case-by-case basis when a farmer applies for the loan.

For more information on PPP and to apply for the loan, see www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.

In addition to PPP, Farm Bureau continues to advocate for inclusion of all farms in the SBA Economic Injury Disaster Loan program, which is separate from PPP and is currently available for agricultural cooperatives, aquaculture, nursery and producer cooperatives. Applications may be found at www.sba.gov/page/disaster-loan-applications.

For additional information, see the "Banking & Finance" section of the CFBF COVID-19 "Industry Resource" page at www.cfbf.com/industry-resource/.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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