Excerpt from Focus on Ag, January 11, by Kent Thiesse
A big portion of the latest COVID relief package that was passed by Congress in late December was directed to assist small businesses through another round of funding to reopen and strengthen the Payroll Protection Program (PPP) through the U.S. Small Business Administration (SBA). The PPP loans will be reserved for businesses with less than 300 employees, as well as for businesses that incurred at least a 25% loss of revenue due to COVID-19 in a specific quarter of the year in 2020, compared to the similar quarter in 2019. The PPP provisions allow for forgivable loans up to 2.5 times the average monthly payroll costs for the year. The maximum level for PPP loans will be $2 million, and PPP loans of less than $150,000 will have a simplified application process.
The latest legislation allows for some self-employed individuals to potentially re-apply for round #1 PPP loans, as well as to apply for round #2 PPP loans. SBA has announced that the re-opening of round #1 PPP loans began on January 11, with round #2 PPP loan applications likely to begin in the near future. Just with previous PPP loans, this round of PPP loans will again be handled through local financial institutions. Farm business will again qualify for this new round of PPP loans, including farm operations that file taxes as a sole proprietorship. Following are some details and clarifications regarding farm-related PPP loan applications:
- Clarification on Round #1 of PPP loans — It appears that self-employed farmers (sole proprietorships) that did not qualify for the first round of PPP loan payments due to having a negative net farm profit on Schedule F of their 2019 Federal tax return may now apply for the first round of PPP loan payments. However, all details are not yet clear on this process. Approximately 37% of the farm operations, including many farmers in Southern Minnesota, did not qualify for the first round of PPP loan payments due to negative 2019 farm profits following the poor crop year in 2019. The revised PPP loan application for sole proprietorships is based on the gross farm income on the 2019 tax return, up to a maximum of $100,000. Based on the PPP loan calculation formula, a farm operation could qualify for a maximum round #1 PPP loan payment of $20,833 ($100,000 divided by 12 times 2.5). Farmers that filed for a round #1 PPP loan as a sole proprietorship and received less than the maximum of $20,833 may be eligible to file for an additional round #1 PPP loan up to the maximum amount if the original PPP loan has not been forgiven. On the other hand, if farmers received a round #1 PPP loan in 2020, which has already been forgiven, they would not be eligible for an additional round #1 PPP loan; however, they would still be eligible to apply for round #2 if they qualify. Farm operations with employees that filed as a partnership or corporation will likely not be affected much by this change.
- Details for the new Round #2 of PPP loans — Self-employed farmers could again potentially be eligible for round #2 PPP loans. The same $100,000 maximum gross income level and maximum PPP loan payment that existed in round #1 of PPP loans for farm operators filing as sole proprietorships will exist for the round #2 PPP loan applications. However, farm operations will need to show at least a 25% decline in revenue for one quarter in 2020, compared to a similar quarter in 2019. For some farmers that were impacted by the poor crop year in 2019 and had less grain inventory to sell in early 2020, meeting the 25% reduction threshold will not be an issue. Farmers that had higher yields in 2019 could have a bit more difficulty meeting qualifications for round #2 PPP loans, depending on the timing of their grain sales and on government program income. It is likely that many livestock producers will be able to qualify for the latest PPP loan payments, due to the large mid-year losses in 2020.
Additionally, farmers will need to apply for loan forgiveness if they’ve taken out PPP loans. You can find the loan forgiveness application here.
MFU co-sponsored a webinar earlier in February which was recorded. You can find it at https://www.misa.umn.edu/covid-19/grants-cost-share/paycheck-protection-program-2.
For more details on PPP loan applications, farm operators and other businesses should contact their local ag lender or go to the SBA website at: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program