UPDATE: Since this article was originally published, the initial round of PPP funding under the CARES Act has been exhausted, but small farms can apply for another set of federal disaster loans under a new deal reached April 21 by Congress and the Trump Administration. The agreement allows agricultural operations with fewer than 500 employees to qualify for SBA Economic Injury Disaster Loan (EIDL), which offers up to $10,000 in advance to businesses that are losing revenue amid the pandemic. Learn more and apply for EIDL. The deal also replenishes the depleted PPP, setting aside an additional $321 billion for the program, including $60 billion for small businesses without access to large financial institutions, but funding is not expected to last long, maybe just a matter of days.
The COVID-19 pandemic is wreaking havoc, not only on human health, but also on our economy. And farmers are not being spared. The good news is that there are some tools out there to help.
Three disaster aid packages have been developed as of this writing and more are in the works. In this post, we will do our best to break down the Paycheck Protection Program (PPP). This is one of two programs included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act for small businesses, and the only one available to farmers.
The CARES Act expands the PPP, which is administered by the Small Business Administration (SBA), to provide much needed relief for small businesses, many of whom have temporarily closed their doors due to shelter in place and social-distancing directives. Congress allocated $349 billion to the PPP, which provides forgivable loans of up to $10 million to help businesses (including farm businesses) rehire or retain workers during the COVID-19 crisis.
The general rule is that this program is open to businesses (S-corps, C-corps, sole proprietorships, LLCs, and partnerships) with 500 employees or less. In determining “head count,” these business should include all employees (full or part-time and seasonal), but not independent contractors or volunteers.
The program is also open to self-employed individuals and contractors, who can apply for themselves.
SBA also requires that farms and agricultural businesses first explore Farm Service Agency (FSA) loan programs, particularly if the applicant has a prior or existing relationship with FSA. For more information about FSA loans and policies, check out USDA’s Farm Loan Compass.
Use of Funds
The loans can be used to cover payroll, paid sick leave or medical leave, insurance premiums, rent costs, mortgage interest, and interest on debt obligations incurred before February 15, 2020. The stated intent of the program is to “provide relief to American small businesses and keep workers paid and employed.”
How to Apply
The loans are processed through “SBA approved lenders.” If you don’t have a lender, SBA has a program called Lender Match, which allows applicants to find approved lenders by state. Those businesses that apply need to certify that the current economic uncertainty makes the loan request necessary to support ongoing operations.
To begin preparing your application, you can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender.
These loans are on a first-come, first-served basis, so we recommend applying as soon as you can.
The loan may be fully forgiven if the funds are used for payroll costs, mortgage interest, rent, and utilities. At least 75 percent of the forgiven amount must have been used for payroll. Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Loan forgiveness is not automatic or guaranteed. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. The loan can be forgiven if employees are kept on payroll for eight weeks and the loan is used as intended. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. This loan has a maturity of 2 years and an interest rate of 1 percent.
Farmers will want to evaluate all options available to them to see if PPP loans make the most sense for their operations. For example, small farms who have very few employees and associated payroll may not receive significant benefit from PPP loans.
Also, the demand for the program has been so high that few businesses have been able to have their loans processed. Congress tried to allocate more than $200 billion additional to the program unsuccessfully last week, but is likely to add more resources to this program soon.
Taking Action for the Future
It is important to ensure that as programs—like PPP and the $9.5 billion allocated to the Commodity Credit Corporation—are implemented for the express purpose of assisting farmers and small businesses, that Congress hears from farmers that need this assistance the most.
If you operate without a safety net like subsidized crop insurance, Title One commodity supports, or Market Facilitation Payments, please contact your members of Congress to ensure they are thinking about you when future decisions are made.
You can call the U.S. capitol switchboard at (202) 224-3121. Their aides compile the number and types of calls received and this DOES impact legislation and appropriation of resources.
If you apply for PPP, or contact your member of Congress, send us a note describing your experience so that we can represent your concerns in our advocacy work and ensure the process is transparent and accountable to taxpayers.