Forgivable Loans through the SBA

Payroll Protection Program

Background: What is PPP?

The Paycheck Protection Program (PPP) started in April of 2020 to help small businesses who suffered economic injury due to the pandemic continue to pay employees during the brunt of the pandemic.  The loans were then designed to be forgiven if the funds were distributed according to the guidelines.  The program was extraordinarily successful and quickly depleted the $349 billion funding prompting congress to allocate an additional $320 billion to continue the program.

As the second round of funding was being disbursed many holes in the program were brought to light and addressed by SBA.  One such correction dealt with small businesses or self-employed individuals who had no employees but were still reeling from pandemic closures.  However, many small businesses, farmers in particular, were not structured in a way where they could benefit from PPP loans which prompted congressional intervention.

At the end of 2020 congress approved an additional round or “second draw” of PPP loans to help the hardest hit industries such as hospitality and restaurants.  An additional $284 billion was added to facilitate the second draw loans as well as improvements for self-employed individuals. To qualify for the second draw PPP loan a business needs to show a 25% quarterly loss from 2019 to 2020.

An additional fix was a new calculation for farmers and ranchers to calculate or recalculate their first draw loan using gross income rather than net profit on their schedule F tax form to better reflect owner compensation for a self-employed farmer. This fix however was not extended to farming partnerships or multi-owner LLCs. The Biden administration later extended this new calculation to all self-employed individuals based on their schedule C tax form.

PPP loan applications for first and second draw loans are still being accepted until May 31, 2021.

Eligibility

First Draw Loans:

  • Sole proprietors, independent contractors, and self-employed persons
  • Any small business concern that meets SBA’s size standards
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with less than 500 employees unless higher by SBA industry size standard
  • Any business with a NAICS code that begins with 72 that has more than one physical location and employs less than 500 per location

Second Draw Loans

  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020,
  • Previously received a First Draw PPP loan and will or has used the full amount only for authorized uses; and
  • Has no more than 300 employees.

Loan Amount

  • Loan amounts are calculated based on 2.5 months of a business’s payroll. Each employee is limited to $100,000 annual payroll.
  • Self-employed individuals without employees use their gross income from IRS Form 1040 Schedule C or F, limited to $100,000. That amount is then divided by 12 and then multiplied by 2.5 to account for 2.5 months of owner compensation.

Forgiveness

PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

  • Employee and compensation levels are maintained,
  • The loan proceeds are spent on payroll costs and other eligible expenses; and
  • At least 60% of the proceeds are spent on payroll costs which can include owner compensation.

The forgiveness period can be up to 24 weeks long.

Applying for PPP

PPP loans are being administered by approved SBA lenders and are technically a new form of the existing SBA 7(a) loan program. Farmers and ranchers can apply for PPP through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit unions and the Farm Credit System institution.

To start the process of applying for PPP, consult with local lenders. If local lenders have not been approved to participate or a lender cannot be located, the farmer and rancher can utilize the SBA PPP lender search tool.

FiscalNote has compiled a comprehensive list of SBA 7(a) approved lenders here. The list provides a list of community banks, credit unions, nonprofit organizations and online lenders who are available to assist farmers and ranchers acquire a PPP loan.

Agricultural Specific Details

Farmers and ranchers who previously applied for a first draw loan but have not received forgiveness may recalculate loan amount based on new calculation below.

Self-employed farmers and ranchers with a schedule F now calculate individual payroll based on gross income (line 9) rather than net profit (line 34). Annual salary is limited to $100,000 allowing a farmer to qualify for a loan up to $20,833.

Single member LLCs also qualify for the new PPP loan calculation.

FAQs

I am a self-employed farmer with no salaried employees. Do I qualify for PPP?
Yes. Farmers with no employees who file a schedule F tax form qualify for a PPP loan based on their gross income (line 9) not to exceed $100,000.

I am part of a partnership or multi-member LLC farming operation. Do I qualify for PPP?

Yes, but your loan is calculated differently than self-employed farmers. Partnerships and LLCs without employees must use net profit (line 34) when calculating owner compensation not to exceed $100,000 per member.

Where do I apply for PPP?

To start the process of applying for PPP, consult with local lenders. If local lenders have not been approved to participate or a lender cannot be located, the farmer and rancher can utilize the SBA PPP lender search tool.

FiscalNote has compiled a comprehensive list of SBA 7(a) approved lenders here. The list provides a list of community banks, credit unions, nonprofit organizations and online lenders.

If I am involved in a chapter 12 bankruptcy filing am I eligible for PPP?
No. SBA has released guidance stating that individuals involved in a bankruptcy filing are not eligible for a PPP loan.

Will I be audited?

Loans over $2 million will be audited. Loans under $2 million are not required to
audited but will be reviewed on a case by case basis. Regardless, there will be a requirement to document payroll was maintained and only qualified expenses were covered using PPP funds as required for loan forgiveness. You will also be required to make a good faith certification that you are affected by COVID-19.

Will receiving PPP funds affect my farm program payment eligibility or limits?

No. PPP is a standalone program with no effects on farm
program payment eligibility or limits.

When is the deadline to apply for PPP?

May 31, 2021 or until funding is depleted.