As part of the CARES Act signed by President Trump on March 27, 2020, the Small Business Administration (SBA) is directed to administer a new Paycheck Protection Program (PPP) loan to facilitate the delivery of $349 billion.
There has been a lot of attention to the PPP program because it includes terms to forgive the loan if the proceeds are used for eligible business expenses, primarily payroll and payroll costs such as benefits. The intention of the program is to provide funding to businesses impacted by COVID-19 so that they can avoid laying off employees.
The program funds will be delivered through the Farm Credit associations like AgCountry Farm Credit Services, local banks and credit unions. Both SBA and AgCountry are still working out details for this new program so much of this is still in draft form. We will continue to monitor the details of the program as they are published and will provide you with information on our delivery of the program.
We understand you have a lot of questions and we will not be able to address them all yet, but we can tell you some of what we know and what we believe will happen.
Paycheck Protection Program Overview: THIS GUIDANCE IS DRAFT FORM
- General eligibility is all businesses with less than 500 employees to include nonprofits, veteran’s organizations, Tribal business concerns, sole proprietorships, self-employed individuals and independent contractors:
a. While farmers are not an eligible industry for most SBA programs, we believe they are eligible for this program.
b. Because our normal eligibility requirements still apply, AgCountry can only serve the agriculture industry. In general, you must be a farmer, or a farmer-owned business to apply for a PPP loan through AgCountry. - Loan amounts are determined by the lender based on customer information. You can borrow up to 2.5 times your monthly payroll costs which include:
a. Payroll which include salary, wages, commissions, or tips but is capped at $100,000 annualized per employee
b. Plus employee benefits including costs for vacation, parental, family, medical, or sick leave, separation or dismissal allowance, payments required for a group healthcare benefit including premiums, payment of retirement benefits
c. Plus state and local taxes assessed on compensation
d. For sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped again at the $100,000 annualized per employee
e. Mortgage interest, rent and utilities are eligible expenses for the purpose of the loan but are NOT to be included in calculating the maximum loan amount
f. To a maximum of $10 million - The PPP loan can be used for:
a. Payroll costs including benefits
b. Interest on a mortgage which was in place prior to February 15, 2020
c. Rent or lease agreement in place prior to February 15, 2020
d. Utilities, which were in service prior to February 15, 2020 - Terms:
a. Term of the loan is up to 2 years
b. No pre-payment penalty
c. First payment is deferred for 6 months
d. Interest rates is fixed at 1.0% (updated 04/03/2020)
e. No collateral or personal guarantee requirements
f. No fees - Loans are 100% SBA guaranteed
- Loan Forgiveness – The loan amounts will be forgiven as long as certain requirements are met.
a. The principle and interest can be forgiven, but you will owe money IF:
i. Proceeds are not used for program purposes noted in #3 above
ii. Forgiveness amount will be reduced if staff is reduced
iii. Forgiveness amount will be reduced if payroll is reduced
b. Re-hiring – you have until June 30, 2020 to rehire full-time staff and salary levels for any changes made between February 15 and April 26, 2020
c. It is anticipated that not more than 25% of the amount forgiven can be from non-payroll costs (i.e. mortgage interest, rent, utilities)
d. Amounts forgiven will not be subject to tax as income
Application – A copy of the Application Form is included with this update or can be found here: Paycheck Protection Program Application. Customers interested in the PPP program can begin gathering the documentation to support the payroll and other payroll costs. You will need to certify to these costs on the application and provide us with documentation verifying them, so spending some time to gather what you need will be worth it. A copy of your most recent filed tax returns or at least enough tax documentation to support the payroll costs may be the easiest method.
The application period(s) begin on April 3, 2020 for small businesses and sole-proprietors and on April 10, 2020 for independent contractors and self-employed. We are assuming that farmers and farm businesses would fall into the first group.
We want to remind you of the following:
- These are Draft guidelines and could change
- $349 billion sounds like a large funding, however it’s widely speculated that it will go fast
- Applications taken cannot be guaranteed to get accepted and/or funded
The SBA PPP Information Sheet for Borrowers has additional information.
We will continue to monitor and provide updates as final SBA direction is known and how we will handle the application process as quickly and efficiently as we can for you while maintaining social distancing and safety concerns for both you and our teams.
