Update: Dec. 10, 2020 – COVID-19 Economic Injury Disaster Loans (EIDL) – Expires Dec. 21, 2020 – provides information about the qualifications and application process for these loans.
Update: Nov. 24, 2020 – PPP Loan Forgiveness: what farmers need to know – provides information about reviewing the application steps for PPP loan forgiveness – with links to webinars, worksheets and resources.
Update: July 15, 2020: The EIDL Advance funding has all been distributed. The EIDL working capital loan program is still open for applications.
Update: July 7, 2020: Paycheck Protection Program (PPP) deadline for application has been extended to August 8, 2020.
Update: June 12, 2020
On June 5 changes were made to several aspects of the Paycheck Protection Program:
- Employers now have 24 weeks instead of 8 weeks to use the PPP loan and it will still be forgiven. Those who received a PPP loan before June 5 can still choose to have the 8 week period apply.
- The percentage of the loan that must be spent on payroll to receive forgiveness is now 60%, down from 75%. If a borrower uses less than 60% of the loan on payroll costs, the borrower will still be eligible for partial loan forgiveness.
- The time for repaying the loans has been extended to five years instead of two. This only applies to loans made on or after June 5, 2020. But lenders and borrowers can discuss and if they both agree, earlier loans can be modified.
- Exemptions for an employer who has reduced their full-time equivalent workforce are possible under certain conditions. For more details, see Iowa State University’s Center for Agricultural Law and Taxation’s article: Congress Revises Paycheck Protection Program to Assist Borrowers.
- The payment deferral period for PPP has been revised to allow borrowers to defer payments until the lender receives compensation for the forgiven amounts. Borrowers who don’t apply for forgiveness will have 10 months after the end of the forgiveness to start making payments.
- Allows borrowers who receive PPP loan forgiveness to defer the 6.2% employer portion of social security payroll taxes. The CARES Act originally did not allow PPP borrowers who had received loan forgiveness to defer payroll taxes.
- Provides a shorter timeframe for considering owners with certain felonies as ineligible. Owners are ineligible if they have been convicted within the last 5 years for felonies that involve fraud, bribery, embezzlement, or false statements on financial loan or federal assistance applications. However, for all other felonies the timeframe has been shortened to one year.
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). Farmers must have fewer than 500 employees.
These loans are facilitated through lending institutions with established relationships with the SBA. Farmers can also work with the Farm Credit Service organization that services their geographic area. Some lenders and Farm Credit Services are limiting their PPP lending to businesses with which they have existing relationships. Here is a list of SBA approved lenders organized by state as of June 25, 2020 (Wisconsin lenders start on page 572). After reviewing the eligibility criteria below, the first recommendation is for farmers to call their current lender(s) to see if they have that SBA relationship and ask if they are ready to accept PPP applications. The lender may have their own restrictions, application form and documentation requirements.
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.
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 24-week period after the loan is made; and
- Employee and compensation levels are maintained.
- For a loan to be completely forgiven, no more that 40% of the loan can be used for anything other than payroll. For example, if you use 45% 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 40% 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 if the loan was made before June 5. If the loan was made on or after June 5, the loan is due in five years. However, as with any loan, there is always potential for renegotiation. Lenders and borrowers can discuss and if they both agree, the earlier loans could be modified.
How do farmers apply?
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 June 25, 2020 (Wisconsin lenders start on page 572). Get their application and supporting document list.
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
Note: As of July 14, 2020: The EIDL Advance funding has all been distributed. The EIDL working capital loan program is still open for applications.
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,
- Employee owned businesses,
- Tribal small businesses,
- Private non-profit that has tax exemptions under 501 (c), (d) or (e).
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 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:
- Fixed debts (like mortgages but not on federal debts),
- Accounts payable,
- 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.
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, University of Wisconsin 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
- 26:25 What lines/what information should they use for gross revenue and cost of operation for EIDL application?
- 27:24 “Can I have both an EIDL and a Paycheck Protection Program?”
- 28:26 So what do people use for gross revenue and then also gross… the cost of operation. Do you know which lines on the Schedule F they should be using for those two for the EIDL application?
- 29:37 Is anybody advising farmers to make some calculations and try to fit within that February 1st through January 31st timeline? Or are people probably using their 2019 schedule F numbers for EIDL application?
- 31:04 Do you include depreciation in Line 33 of EIDL application?
- 31:54 What if they haven’t filed their 2019 tax returns? Can they use 2018 tax information, or what do they use if they haven’t filed their 2019 taxes?
- 32:56 What if you don’t have employees and you don’t have a profit in 2019?
- 36:43 How do you count part-time employees on EIDL application?
- 37:07 Can I include employees on my EIDL application whose permanent residence is outside the US?
- 37:33 If I don’t have employees but I own the business with my spouse, how much could I get for EIDL advance?
- 55:52 What is the maximum EIDL loan for Wisconsin?
- 1:02:29 If I get $1,000 EIDL advance and then I get approved for a $10,000 loan, how much additional do I get?
- 1:03:04 Has the SBA confirmed that their EIDL loans will be subordinate to other farm loans? What position do they take?
- 1:04:26 If I only want the EIDL advance?
- 1:06:11 What if I submitted my EIDL application but realized I did some things incorrectly?
- 1:06:56 I don’t have internet. How do I submit an EIDL application?
- 1:08:07 If I don’t have internet, could my accountant help me submit the EIDL application?
- 1:08:28 What if my collateral is tied up with my lending bank? What does SBA use when looking at EIDL loans greater than $25,000 that need collateral to secure the loan?
- 1:09:06 How does having an off-farm job or income affect a farmer’s eligibility for EIDL for their business?
- 1:09:50 I submitted my EIDL application but haven’t heard back. What should I do?
PPP Q&A links
- 38:52 Can the PPP money be spent on 1099 labor?
- 40:30 How long do I have to repay the PPP loan?
- 41:26 When does the 24-month repayment “clock” start?
- 42:26 Utilities have to be in place and in service by February 15 but what time period does the PPP loan pay for these utilities?
- 43:12 Will commodity wages quality as labor expenses for the forgiveness of PPP?
- 44:50 What documentation or proof will producers need to provide for the loan to be forgiven in the future?
- 48:22 If you don’t have employees, how much is forgiven and how do you document what you used it for because there’s no employees for PPP loan?
- 50:57 What if current employees left us and we have PPP loan proceeds?
- 53:38 Is there a minimum threshold language for the PPP loan?
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:
The Small Business Administration regularly updates its PPP FAQ site.
Other resources: Iowa State University’s Center for Agricultural Law and Taxation has information on the Paycheck Protection Program