COVID-19 and Paycheck Protection Program: Farms Presumed Included (With Practical Limitations)

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(Note to Readers:  periodic updates to this piece will happen as circumstances surrounding this program evolve. At bottom are links to various news articles on farmers’ experience with applying for the PPP.)

UPDATEThe PPP program has apparently “run out of money.”  Secretary Perdue has announced a new program for farmers totaling $19 Billion ($16 billion in direct payments and $3 billion in government purchase of commodities). A separate piece on the structure of that program will be posted soon.

The Small Business Administration has issued its interim final rule on implementation of the Paycheck Protection Program (PPP), authorized sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) (the “CARES Act”).

In short the PPP provides SBA-guaranteed loans to cover payroll costs for small businesses with less than 500 employees whose revenue has been impacted by the Covid-19 pandemic. The loans may be forgiven up to 100% upon maintaining the payroll level counted in the loan application. The application period for PPP runs from April 3 to June 30, 2020. Here is a link to download the application form as released on April 3.

From a review of the statute and interim final rule, it appears farm production businesses – normally excluded from SBA loan programs – are not excluded for this program. Though the interim final rule does not explicitly mention “farms” or “agriculture,” it does specifically qualify the Farm Credit System to issue loans guaranteed by the program, which should include agricultural borrowers. (A brief email exchange with Carolina Farm Credit on April 3 revealed preparation to begin processing farmer PPP loans starting week of April 6, though preparation was still in progress.)

However, given the unique labor structuring of farm operations, the PPP may have limited utility for many farm operations, particularly those with most payroll liabilities for H2A labor (not qualified under PPP) and domestic labor (those with principal place of residence in the US) hired during harvest later in the summer and fall (after PPP program ends). The PPP will most beneficial to year-round operations – such as livestock, dairy and nursery – with domestic labor on payroll. Because the program is implemented to alleviate economic pain during the short-term economic effects of the pandemic, the application period closes June 30, 2020 and (as yet) is not available for fall harvest payroll. Unfortunately for spring agritourism operations, social distancing has greatly curtailed that business activity in advance of those farms taking on employees for the spring season.

(Another fund established under §1110 of CARES – the Economic Injury Disaster Loan (EIDL) program – specifically excludes farms. A letter signed by 86 members of Congress has been sent to SBA demanding a legal justification for the exclusion in an effort to eliminate this exclusion.)

For those who feel the PPP will be of benefit, loan funds may be used for:

  • Payroll costs, including benefits (inclusions and exclusions below)
  • 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

A borrower’s loan may be forgiven up to 75% of the loan amount that is applied toward payroll costs as compiled in the borrowers application. The borrower may be forgiven for only 25% of the loan applied to mortgage interest, rent and utilities as forecast in the application. Full 100% forgiveness of the loan requires that employee and payroll is maintained, though the rule indicates SBA will be offering further guidance on forgiveness.

Loan payments are not due until six (6) months following the date of disbursement, though interest will accrue from that date.

Payroll costs include salary, wages, commissions and tips (a good faith estimate is accepted; benefit payments such as vacation and parental, family and medical leave, including group benefit plan payments; any separation allowances made (e.g. “two weeks pay”); and any state and local payroll taxes.

Payroll costs do not include salary expense for an employee with $100,000+ annual salary or any family leave or sick wages paid but for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127), companion legislation responsive to the pandemic. 

While farms may not include service and other labor hired as independent contractors (i.e. those issued a 1099), independent contractors may qualify and apply for PPP on their own.

SBA will likely be issuing clarifications on the program in the days ahead.

Continuing News and Commentary on the PPP

ProFarmer:  USDA Stresses Ag Producers, Farmers and Rangers Eligible for SBA’s PPP (April 8, 2020)

Progressive Farmer:  SBA Loan Demand High (April 7, 2020)

National Sustainable Agriculture Coalition:  Confusion Remains over SBA Assistance to Farmers (April 3, 2020)

Carolina Farm Stewardship Association: Covid-19 Relief Funds Available to Farmers Starting April 3 (April 7, 2020)