Paycheck Protection Program in the new COVID Relief Bill

Dairy Farmer Couple
29 Dec 2020
The Coronavirus Response and Relief Supplemental Appropriations Act, passed last week by Congress and signed on Sunday by the President, has added another round of Paycheck Protection Program (PPP) loans. With this comes some positive changes to the program, which we detail below. 
 
Changes to the PPP loan program
 
Expenses paid with PPP loan proceeds, both previous PPP loans and future PPP loans, will now be tax deductible. The Treasury department had previously denied this, but Congress has written legislation allowing it. The PPP loan proceeds, even if forgiven, are not considered taxable income.
 
Previous PPP loans and future PPP loans will add worker protection expenditures - including facilities modifications, safety equipment, personal protective equipment (PPE) and other protection expenditures - as eligible expenses for PPP loan proceeds.
 
Simplified Forgiveness Application 
 
For loans not more than $150,000, the loan amount shall be forgiven by signing a one-page certification that provides:
a. The number of employees the recipient was able to retain because of the loan
b. The estimated amount spent on payroll costs
c. The total loan value
  
The forgiveness form will also have a statement that attests that the recipient has accurately provided the required certification and complied with the requirements of the loan. No other information or documentation will be required to be submitted.  
 
However, this is not a free pass to do whatever you want with the loan proceeds. They must still be used for eligible expenses to be forgiven. The bill states that the loan recipient must retain relevant records to prove forgiveness compliance with the loan requirements for four years for employment records and three years for other expense records. The Small Business Administration (SBA) may review and audit PPP loans for compliance and can modify the amount of the loan or the loan forgiveness amount even after the loan has been forgiven.
 
PPP Second Draw Loans

PPP Second Draw Loans is the term used in the bill for this next round of PPP. The PPP second draw loans have a loan forgiveness provision in them, similar to the first round.
 
Farmers are again eligible for PPP loans in the second draw, but they have narrowed the scope of eligibility. To be eligible this time around, a business must have 300 or fewer employees and "had gross receipts during the first, second, third, or fourth quarter in 2020 that demonstrate not less than a 25% reduction from the gross receipts of the entity during the same quarter in 2019."   

In other words, you have to show a quarter over quarter loss of revenue or receipts of 25% or more.  This should work OK for a hog producer or dairy farm that has regular weekly or monthly sales.  But it is difficult to see how that will work for a grain farmer. If you sold all of your grain in January, February and March of 2019 and didn’t sell any grain in January, February and March of 2020, you would be eligible. But could that really be right? We’ll have to see how SBA writes the rules on the eligibility requirements.
 
The maximum loan amount will again be two and a half times the average monthly payroll costs for the past 12 months, or for the 2019 calendar year, to a maximum of $2 million. There is language for calculations for seasonal employers and new entities.  
 
Also of note, there is a section in the bill specific to farmers and the maximum loan amount. They are changing the basis for the maximum loan amount on sole proprietors with no employees from net income on the Schedule F to gross income on the Schedule F. There is still a gross income maximum of $100,000, just like the net income maximum in the last round. Use the Schedule F gross income, divide it by 12 months and multiply by 2.5 for two and a half months of pay. Using this calculation, the maximum loan amount for a sole proprietor with no employees is $20,833 like the last time, but more farmers should be able to get that since it’s based on sales and not net income on the Schedule F. If the sole-proprietor farmer has employees, they would add the employee payroll calculation noted previously to the gross income calculation just described to reach a maximum loan amount.
 
To prevent all the PPP funds from being used by big banks, $15 billion has been appropriated for use by banks, credit unions and institutions of the Farm Credit System with assets of less than $10 billion.  AgCountry falls into that group.  
 
The bill requires the SBA to have the process in place within 10 business days from the President signing the bill. However, we don’t know when SBA will be ready and when we can start accepting applications so there is no need to call your loan officer or AgCountry branch office at this time. We just wanted to make you aware of what is in the bill regarding the PPP for farmers and ranchers.  
  
The Coronavirus Response and Relief Supplemental Appropriations Act is over 5,500 pages long. This is just a brief overview of the Paycheck Protection Program provisions in the bill that pertain to agriculture, farming and ranching and is not all inclusive. The above information may change based on SBA’s interpretation of the bill and the rules they write for the PPP program.

We should hear more this week from SBA, United States Department of Agriculture, the Farm Credit Council and others so stay tuned.  We will provide updates as more information is available.
 
No Next Items
Howard Olson
Written By: Howard Olson
SVP Government and Public Affairs