Note: This post has been updated since its original publication and is current as of July 8. We will continue to update this post as more information becomes available.
As small businesses of all kinds struggle to stay afloat and cope with the intensifying impacts of the ongoing COVID-19 pandemic, Congress has taken important steps to provide desperately needed relief to small businesses struggling to stay afloat. And while farms are eligible for much of this relief, it remains to be seen whether or not farmers will receive the kind of assistance they need, or if additional Congressional action is needed.
SBA and the CARES Act
Over the past few months, Congress has passed several bills that provide much needed, urgent relief to our nation’s small businesses – including farmers. Together, the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act include nearly $700 billion in forgivable loans to help small businesses cover expenses like payroll, rent, mortgage, utilities, and other obligations that cannot be met due to the unexpected losses in revenue associated with the ongoing pandemic. Congress also recently extended the deadline for the Paycheck Protection Program from June 30 to August 8th.
While none of these programs are under the jurisdiction of the U.S. Department of Agriculture (USDA) and therefore not exclusively targeted to farmers, many in the farm community are looking to the Small Business Administration (SBA) – who operates these programs – to make sure farmers are treated just like any other small business and are able to receive emergency assistance during this prolonged economic crisis.
The CARES Act dramatically expands SBA loan programs by creating the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) Emergency Grants. Both of these programs aim to provide urgent relief for small businesses, many of whom have temporarily closed their doors or have had sales otherwise disrupted due to “shelter in place” and similar “social-distancing” directives.
Now months after these programs were signed into law, there are still many questions regarding how these new programs are supporting our nation’s farmers and farm businesses. This post includes background information, frequently asked questions, and resources for where farmers and small businesses can find more information on these emergency loans. We will continue to update this post as more information becomes available.
Paycheck Protection Program
The CARES Act provided an initial $349 billion for SBA’s Paycheck Protection Program (PPP), which provides forgivable loans of up to $10 million to help businesses (including farm businesses) rehire or retain workers during the COVID-19 crisis. By mid-April, this funding was exhausted, and SBA ceased accepting PPP loan applications. Congress replenished this funding in May and provided an additional $321 billion to PPP.
Of the additional PPP funding provided, $60 billion will be dedicated for small businesses lacking access to large financial institutions. Congress included specific funding set-asides for Community Development Financial Institutions (CDFIs), minority depository institutions and smaller lenders to ensure the farmers and borrowers they serve are able to access emergency relief as well.
As of June 30, SBA has approved 4.9 million loans totaling $521 billion across all 50 states. Roughly $132 billion in PPP loan funding remains available.
All businesses with fewer than 500 full-time or part-time employees (including farms and food businesses) are eligible to obtain a PPP loan. Businesses include sole proprietorships, independent contractors and self-employed persons, 501(c)(3) private non-profit organizations, tribal organizations, or 501(c)(19) veterans organizations affected by COVID-19. Businesses and farms must have been in operation as of February 15, 2020.
Despite initial confusion, farms (and other small businesses) are not required to also fall under the revenue cap set by SBA for defining ‘small business’ in any given sector. For farms (including livestock and aquaculture) that cap would be $1 million in annual revenues.
While some farmers have been told by SBA that farms and agricultural businesses must first explore Farm Service Agency (FSA) loan programs, particularly if the applicant has a prior or existing relationship with FSA, Congress was clear in creating PPP that borrowers are not required to demonstrate that they are unable to obtain credit elsewhere. And since no similar loan program exists at FSA, farmers should be able to obtain SBA PPP loans without first going to FSA.
For more information about FSA loans and policies, check out USDA’s Farm Loan Compass.
What can PPP loans be used for?
PPP loans can be used to cover payroll costs, mortgage interest, rent, and utility costs over the 24 week period after the loan is made. Payroll costs include salaries, employee benefits, and payroll taxes. However, it’s important to note that the CARES Act places a restriction on PPP payroll expenses to cover “Only individuals whose principal place of residence is in the United States are considered employees under PPP.” While additional clarity is needed, farmers are advised to exclude payroll for any foreign workers, including H-2A workers, in their PPP loan applications.
What are the Terms and Conditions?
PPP loans are capped at $10 million, and can cover up to 6 months of a business’s average monthly payroll costs (plus an additional 25 percent for non-payroll expenses). Although the payment is made as a loan, any loan proceeds that a business uses to cover payroll costs, mortgage interest, rent, and utilities during the 24-week period after the loan is made can be forgivable. However, this forgivable amount will be reduced if businesses don’t maintain full-time employees (as of February 2020); decrease salaries or wages by more then 25 percent, or spend more than 25 percent of the loan on non-payroll costs.
The interest rate on PPP loans is 1 percent, and loan payments for any non-forgivable costs will be deferred for 6 months. The loan term is up to two years for loans made prior to June 5th, and up to five years for loans made after that date. If all or a portion of the loan is forgiven, the forgiven amount will not be subject to federal income tax.
Farmers will want to evaluate all options available to them to see if PPP loans make the most sense for their operations. For example, small farms who have very few employees and associated payroll may not receive significant benefit from PPP loans. Whereas farms that have year-round workers and larger payroll expenses may benefit more from PPP loans.
How to Apply?
Starting April 3rd, farmers and other small businesses can apply for PPP loans through existing SBA lenders, or through any federally insured depository institution or credit union, and Farm Credit System Institutions who are enrolled in SBA’s loan programs. Other lenders will be available to make these loans as soon as they are approved and enrolled in PPP.
Farmers and other small businesses will need to complete the PPP loan application and submit to an approved lender by August 8, 2020. Loan funding will be provided on a first come, first served basis. Farmers and other small businesses who may be eligible are encouraged to apply as soon as possible. It’s important to note that borrowers don’t necessarily need to close on their loans immediately and can work with their lenders to choose a closing date that more closely aligns with the greatest 24 week payroll period for their operation.
For additional details on loan eligibility, refer to the PPP Borrower Fact Sheet or SBA’s PPP website. USDA has also released a COVID resource page that includes FAQs on how programs apply to farmers. For a free, customizable PPP loan calculator template, check out these free COVID resources from the Pennsylvania Association for Sustainable Farming!
Economic Injury Disaster Loans
The CARES Act also provided $10 billion to expand SBA’s Economic Injury Disaster Loan (EIDL) program by authorizing emergency grants of up to $10,000 that do not need to be repaid. While smaller in scope than PPP loans, EIDLs can cover a broader range of business related expenses that are essential to help farmers and food businesses overcome the temporary loss of revenue related to the COVID-19 crisis.
By mid-April, SBA exhausted all EIDL funding and ceased accepting new loan applications. Congress replenished this funding in May and provided an additional $50 billion to resume the EIDL program, including $10 billion for EIDL emergency grants. In addition, Congress clarified that farmers are eligible for EIDL funding.
Note: As of May 4, SBA has now reopened the EIDL program and is only accepting applications from agricultural businesses who are newly eligible for funding. For agricultural businesses that submitted an EIDL application prior to April 15, SBA will process these applications without a need to reapply.
Small businesses (including farmers) and non-profit organizations with fewer than 500 employees are now eligible to obtain an EIDL, including the new emergency EIDL grant.
Historically, SBA has deemed “agricultural enterprises” as ineligible for most SBA loans, and there has been much confusion since rolling out EIDL emergency grants whether farmers were eligible for loan funding. SBA defines agricultural enterprises to include “those small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries.” However, Congress clarifies in Section 101(c) of the Paycheck Protection Program and Health Care Enhancement Act that farmers ARE eligible for EIDL loan funding.
In addition to agricultural enterprises, cooperatives, nurseries and aquaculture businesses, several other agriculture-related businesses are eligible for EIDL. These include agritourism enterprises, on-farm retail stores, and value-added enterprises, as well as non-profits that operate farmers markets or food hubs. More on efforts to address these eligibility issues below.
What can EIDLs be used for?
The loan and emergency grant can be used to pay fixed debts, payroll, accounts payable and other bills that a business or farm cannot pay because of the ongoing COVID-19 crisis.
What are the Terms and Conditions?
EIDLs are capped at $2 million, though a business or non-profit can apply for an advance of up to $10,000, which will be made available within three days of a successful application. The advance does not need to be repaid. The interest rate on an EIDL is 3.75 percent for small businesses and 2.75 percent for non-profit organizations. Payments on Coronavirus EIDL loans are deferred for one year.
How to Apply?
In order to apply for and receive an EIDL, applicants must self-certify that they are eligible to receive a disaster assistance loan by completing the COVID-19 Economic Injury Disaster Loan Application by December 31, 2020.
By far, one of the top concerns that farmers have raised since the CARES Act was passed is whether farmers are eligible to receive assistance through any emergency relief. And while it is now the case that farmers are eligible to receive both a PPP and EIDL loan, we expect that farmers will still face confusion as lenders clarify the expanded eligibility for EIDL.
Historically, SBA has restricted eligibility for some programs to ensure that farmers cannot “double dip” and use SBA disaster programs if they can receive the same assistance from USDA. However, USDA disaster programs (like the Livestock Indemnity Program, Non-Insured Crop Disaster Assistance) currently are restricted to providing relief from natural disasters (such as droughts, floods, hurricanes, etc.) and are not likely to provide any immediate relief to farmers impacted by the COVID-19 crisis.
Many stakeholders within the farm community and within the halls of Congress have raised serious concern with the Administration’s interpretation of the CARES Act and restrictions on EIDL. Last month, Representatives Delgado (D-NY), Anthony Brindisi (D-NY) and Josh Harder (D-CA) along with 83 other members of Congress wrote to SBA urging the agency to:
“ensure that agricultural businesses and farmers are eligible to access the EIDL program, and the other small business provisions in the CARES act. Farmers need our help to make it through this pandemic while continuing to feed American families, fuel our economy, and sustain other resources which are essential to our survival. Now more than ever we must provide our farmers and rural communities with federal assistance needed to combat this pandemic and not turn our backs on these communities.”
While NSAC applauds Congress for taking important steps to ensure farmers are treated like other small businesses and receive the aid they need, we don’t expect this change will be without challenges. We will be closely monitoring SBA’s implementation of both PPP and EIDL and will be updating this post as additional information becomes available.