PPP and EIDL Loans/Advances – What farmers should know

*Note: this article has combined previous Extension articles on PPP and EIDL into one document. This article includes links to a 5/12/2020 webinar with Q&A links and a radio interview with an SBA Regional Administrator by Pam Jahnke.

Paycheck Protection Program

The Paycheck Protection Program (PPP) provides potentially forgivable loans to small businesses to cover up to two months of payroll costs and/or self-employment income during the COVID-19 crisis. Farmers are eligible for PPP loans through the Small Business Administration (SBA).

Who is eligible?

Small businesses, including farms, who have fewer than 500 employees (those receiving W2s in the previous year). Independent contractors/self-employed farmers and small businesses are also eligible to make their own applications to this program.

Partners in partnerships or members of an LLC taxed as a partnership should submit one PPP application for the partnership/LLC. The self-employment income of general active partners or LLC members/managers can be reported as payroll costs (up to $100,000 annual salary basis) filed on behalf of the partnership or LLC.

What costs are covered?

  • Payroll costs, including benefits, such as paid leave, health care benefits, and state and local taxes. The portion of federal taxes that are normally taken from the employee’s gross wages can be included in the calculations and used to pay their portion of federal employment tax. The employer’s share of payroll taxes should be excluded from the calculations. Housing stipends or allowances are considered part of payroll and subject to the $100,000 per employee limits.
  • Interest on mortgage obligations, incurred before February 15, 2020.
  • Rent, under lease agreements in force before February 15, 2020.
  • Utilities, for which service began before February 15, 2020.

The PPP cannot cover the costs of paying independent contractors (those who get 1099s instead of W2s). Independent contractors and other self-employed individuals, including farmers, should apply for their own PPP loans. The PPP loan cannot cover payroll for those employees whose principal address is not within the United States. See IRS regulations (26 CFR § 1.121-1(b)(2)) for additional guidance on determining an employee’s principal place of residence.

How do seasonal businesses determine average monthly payroll?

Seasonal employers can calculate their maximum loan amount by:

  • Averaging the monthly payroll for the 12-week period beginning February 15, 2019, or
  • Averaging the monthly payroll for March 1, 2019 – June 30, 2019, or
  • For employers who have later seasons, they can use any consecutive 12-week period between May 1, 2019 and September 15, 2019.

PPP Interim Rule – Seasonal Employers

What are the amount of the loans?

The amount of the loans are 2.5 times the amount of your average monthly payroll costs from 2019, capped at $10 million. For specific direction on calculating the loan, read the Iowa State University’s Center for Agricultural Law and Taxation blog on guidance on PPP Loans

Can a farmer include their own lost income in the loan?

Farmers can include their own lost income if their 2019 taxes indicate a net income. Current official SBA guidance give direction for loans that have self-employment income reported on the Schedule F to use line 34 for documenting net income. The 2019 IRS Form 1040 Schedule 1 and Schedule F must be included with the loan application.

If your farm/business had a zero or negative net income in 2019, the business owner(s) cannot request funds for themselves through the PPP. They can, however, still request funds to cover their payroll costs for two months. Businesses with no employees and zero or negative net income are ineligible for a PPP loan.

Are these truly forgivable loans?

PPP loans will be forgiven as long as:

  • The loan is used to cover payroll costs, and mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.
  • For a loan to be completely forgiven, no more that 25% of the loan can be used for anything other than payroll. For example, if you use 30% of the loan for mortgage interest, rent and/or utilities, you are required to pay back 5% of the total loan because that is the amount over the 25% you spent on things other than payroll costs.

On May 15, SBA provided more details on how to apply for forgiveness for the loans. Here is the PPP Loan Forgiveness Application

 If someone is required to pay back a portion of the loan, what are the loan terms?

  • Interest at 1%, accrues immediately
  • Payments deferred for six months
  • Loan due in two years.

How do farmers apply?

These loans are facilitated through lending institutions with established relationships with the SBA. Call your current lender to see if they are making PPP loans. If they are not or you don’t have an established relationship with a lender, you can contact the Farm Credit Service lender for your geographic area. Some lenders and Farm Credit Services are limiting their PPP lending to businesses with which they have existing relationships. If you need to find a lender, here is a list of SBA approved lenders organized by state as of May 18, 2020 (Wisconsin lenders start on

page 543). Get their application and supporting document list. The lender may have their own restrictions, application form and documentation requirements.

You will need to provide the lender with payroll documentation such as payroll processor records or payroll tax filings. Independent contractors will have to provide their 1099-MISC forms.

Economic Injury Disaster Loan Program – Loans and Advances

Starting May 4 at 11 a.m., the online application was opened to farm businesses only. We do not know how long this exclusivity for farmers will be available. The online application is at this address: https://covid19relief.sba.gov/#/

To be eligible for an EIDL, a business must have 500 or fewer employees and have been in operation by January 31, 2020. The following types of business are eligible for EIDL:

  • Sole proprietorships, with or without employees,
  • Independent contractors, with or without employees,
  • Cooperatives,
  • Employee owned businesses,
  • Tribal small businesses,
  • Private non-profit that has tax exemptions under 501 (c), (d) or (e).

The application is for the loan program and there is an option to request an advance on the loan. The advance is the part of the loan that does not require repayment.  Start with the online application here: https://covid19relief.sba.gov/#/ .

Here is a link to a May 12 webinar that walks you through the application process and provides answers to some of your questions.  You will need basic gross income for the 12 months prior to January 31, 2020, and basic costs of operations.  You will also need your bank routing and account information so any advance you may receive can be direct deposited.

The advance/grant program provides up to $10,000. These EIDL advances are limited to $1,000 if you had no employees (owners only) and $1,000 per employee (nothing additional for owners) if you have employees. Being given or not given an advance does not necessarily indicate the eligibility for a larger loan.

The SBA EIDL COVID-19 loans can be up to $2 million, based on the severity of economic injury suffered. The interest rate is 3.75% for businesses and 2.75% for non-profits. Maximum term is 30 years. The SBA considers credit history of the applicant and determines the loan term and monthly payments based on the applicant’s financial position. The SBA typically takes 18 to 21 days to process a loan and then two to five days to disburse the funds; however, the volume of COVID-19 applications may affect this usual timeline.

The emergency loans are not forgiven (except for emergency advances, see below for those details).

Loans can be used to cover:

  • Payroll,
  • Fixed debts (like mortgages but not on federal debts),
  • Accounts payable,
  • Rent.
  • Other operating expenses.

There are several things though for which these loans cannot be used. Iowa State University’s Center for Agricultural Law and Taxation has more information in a recent blog post from April 24, 2020, including a list of what is prohibited, such as direct payments to owners, refinancing long-term debt, expanding facilities or repairing physical damages.

Emergency EIDL Advances – and how they can turn into grants

The CARES Act included language and funding for the SBA to provide businesses with advances of up to $10,000 for EIDL loans. These loan advances are supposed to be available within three days of the application (although this has not occurred for many EIDL advances so far). When these quickly accessible funds are used for allowable purposes, these advances become grants. Once these advances are deemed grants, the business is not required to pay the advance amount back. In the previous round of CARES Act funding these EIDL advances were limited to $1,000 if you had no employees (owners only) and $1,000 per employee (nothing additional for owners) if you have employees. Being given or not given an advance does not necessarily indicate the eligibility for a larger loan.

Can Businesses Apply for both the EIDL and Paycheck Protection Program (PPP)?

A borrower can generally obtain both an EIDL and PPP; however, the proceeds may not be used for the same purposes. A borrower still must meet eligibility requirements for each program individually. If a business receives an EIDL advance/grant, it will be subtracted from the forgivable PPP loan amount.

If an application has already received other disaster assistance that must be declared in the application.

On May 12, University of Wisconsin-Madison Division of Extension and the Wisconsin Small Business Development Centers co-hosted a webinar to discuss the PPP and EIDL specific to farmers.  The full one hour and 15 minute recording can be found here:  https://youtu.be/i2YJ9r_6ibg

However, we know you are all busy and this is an especially busy time, so our colleague Liz Binversie, UW-Madison Division of Extension Brown County Agriculture Educator, has connected the Q&A from this longer webinar so that you can go directly to the question/answer you need:

EIDL Q&A links

PPP Q&A links

On May 12, Pam Jahnke interviewed Rob Scott, the SBA Regional Administrator for Region V, which includes Wisconsin. She asked Mr. Scott specific questions on the finer details of the EIDL and PPP, how they work together and whether the EIDL loan limits farmers’ ability to access their already established lines of credits with their traditional lenders. Here is that 15 ½ minute audio recording

Here are links for more information from the U.S. Treasury:

Other resources: Iowa State University’s Center for Agricultural Law and Taxation has information on the Paycheck Protection Program

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